Tax  

How IR35 changes have affected mortgage affordability

  • Describe the impact of IR35 rules on mortgage affordability
  • Explain how lenders are accommodating contractors' new status
  • Explain the use of umbrella companies
CPD
Approx.30min

Simon Butler, head of mortgages at broker CMME, says IR35 creates “further complexities” that some high street lenders are “not equipped to deal with”.

“Since April we have found that more people are overall concerned that these lenders will understand their working status even less, especially for those who have been contracting for themselves and moving inside of IR35 and now working through an umbrella.

“Essentially, mixing a history of self-employment via a limited company to the present day when monthly payslips are received,” says Butler.

But Super Contractors’ Hunter says some lenders are now accommodating to contractors switching from a limited company to an umbrella, “by flexing their lending criteria to facilitate umbrella arrangements, in recognition that these are still the same highly skilled mobile contractor clients as the ones who previously used their limited company contractor mortgage criteria”.

Hunter also notes some lenders, such as Skipton Building Society, do not differentiate between contractors operating through a limited company and those operating through an umbrella company, and will still use the contract day rate value to assess income.

And according to TSB, provided the applicant is on a day rate contract and income can be evidenced as per its standard policy for day rate contractors, they do not differentiate between how a business is set up.

A spokesperson for the bank says that any contracts provided to evidence income would need to show the name of the applicant personally, irrespective of whether there is an umbrella or limited company.

“There isn’t a one size fits all approach when considering contractors,” remarks Andrew Chalton, private client director at broker LDNfinance, which works with a large number of self-employed contractors mostly in the IT and financial services sectors.

“Therefore to our benefit we are able to lean upon our vast network of specialist lenders, which isn’t limited to your typical high street banks.

“As changes occur to taxation law, the requirement for a specialist broker becomes even more apparent as a fundamental tool to navigating an ever-changing and complex market.”

Chloe Cheung is a features writer at FTAdviser

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Contractors falling under IR35 rules will pay the same national insurance and income tax as conventional employees, true or false?

  2. What is happening to affordability for many contractors who fall under the IR35 rules?

  3. How do umbrella companies work?

  4. Lenders have universally embraced the switch from limited company to umbrella company, true or false?

  5. How are some lenders accommodating the switch to umbrella company?

  6. There is a one-size fits all approach to contractors, true or false?

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You should now know…

  • Describe the impact of IR35 rules on mortgage affordability
  • Explain how lenders are accommodating contractors' new status
  • Explain the use of umbrella companies

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