A SOLUTION

mployed status causing you mortgage problems? Read on for some help. In the last edition of Computer Contractor, I highlighted the problems that computer contractors in particular face when applying for a mortgage.

Even though you may have been personally known by your existing lender for a period of some years, the fact that you have recently switched from employed to effectively self employed means they are unprepared to assist you. So, where does that leave you?

Well, you could spend an entire Saturday going up and down the local high street trying to find a lender with a more flexible approach, but that is somewhat unproductive and time consuming. Alternatively, you could use the facilities probably already at your figure tips and see what the Internet or other sources come up with on potential mortgages, but this is probably only going to give you details of the many mortgage schemes currently on offer and will not cover a lender's attitude to contract or self-employed personnel.

The best solution is to speak to a specialist mortgage adviser who will, first of all, be able to eliminate those lenders known to be inflexible.

They will then probably come up with various scenarios for your consideration, such as self certified and non status mortgage facilities.

These are fine for those with a minimum of 15 per cent deposit available, or with 15 per cent minimum equity in their property, although most self certified and non status schemes only offer a maximum 75 per cent mortgage.

Additionally, facilities of this type are very often based on the lender's standard variable rate only, currently about 8.7 per cent and they sometimes even charge a premium on the standard variable rate if the loan is to be non status or self certified. With the extremely competitive fixed rates currently available, or the virtually fee-free deals with a discounted variable rate, it does not make self certified or non status loans particularly attractive.

The main problem many contractors face is that they have only been contracting for a short period and if that period is less than one year, even the non status and self certified loans will not apply. Those with at least three years' audited accounts, showing sufficient by way of net profit as an average over the last three years to support the mortgage required shouldn't have a problem, but that then raises the knotty problem of dividends.

Most computer contractors operate a limited company to receive their contract earnings and if your accountant is doing his job properly, he or she will have suggested that only a small portion, if any, of your earnings be on PAYE and the rest paid as dividends to reduce your National Insurance contributions. This is great for the NIC situation, but not so great as far as many lenders are concerned. The time will come when all lenders recognise that dividends should be treated in the same way as PAYE, but regrettably that time is not yet here. So, where can contractors go for fair and flexible treatment?

Weinel & Partners Financial Consultants recognised the problem area back in March 1996, mainly because one of our staff was married to a computer contractor who was experiencing the same problems many of you face. I wrote an article for Computer Contractor highlighting the difficulties and was amazed at the response and just how many people were affected by the lenders' inflexibility. So, in conjunction with a leading lending institution, I designed an exclusive scheme which would meet your requirements and this was officially launched in August last year. Since then, Weinel & Partners has helped over 100 contractors, with hundreds more enquiries and we now have exclusive schemes with two lenders.

It's really nothing particularly clever. We have simply worked with two lenders who have a realistic attitude towards contractors and, in particular, their dividend earnings. However, because of our relationship with these lenders, we have been able to negotiate a deal whereby, apart from a small administration charge, we don't charge an arrangement fee for setting up the mortgage, which is a big up front saving. Additionally, in many cases we can also offer a refunded valuation fee shortly after completion of purchase or remortgage and on the larger loans, we can also offer a contribution towards legal costs. When you couple this with a discounted variable rate, it is a very competitive package. I have described a couple of specific case studies where we were able to offer a mortgage to contractors under our exclusive schemes, when their own building society or bank were not prepared to assist.

I am not suggesting that Weinel & Partners exclusive deals present the only answer to the contractors mortgage problems. You may find the odd branch of a bank or a building society who are prepared to assist, oranother financial adviser who can offer you a mortgage, although likely to charge you some form of arrangement fee. But if anything in this article strikes a chord, remember there is a solution and you don't have to pay extortionate fees or interest rates to achieve it.

The author of this two-part article, Mandy Witt, is an associate director with London-based Weinel & Partners Financial Consultants.

A HAPPY ENDING

Robert was one of the first IT contractors to approach us and his scenario was very typical.

He had been contracting for five years, but for the most part as a sole trader. He had only just set up his limited company and so there was no record of dividends. He was a first time buyer, which meant he could also show no record of mortgage payments and, having spoken to numerous high street lenders, all of whom had either declined to assist, or were only prepared to offer him a very small mortgage, he had almost given up hope of buying a property in the near future.

Robert then saw my article in Computer Contractor and decided it was worth having a go. His net profit figure on his accounts as a sole trader showed a figure of #45,000 and he was amazed when I told him he could borrow as much as #146,250.

This meant he could consider a much better property than he had originally anticipated. In the end, he didn't need to borrow that much, but found the ideal property for his requirements. One of the nicest things about helping him was his letter after he and his wife had moved in and, with Robert's permission, I have included an extract.

"Being self employed and experiencing difficulties in obtaining an adequate mortgage, we had more or less given up the idea of having our own home.

I really didn't realise what a wonderful feeling it is to be able to change the front door lock and know that we possess the only keys to the door, that there aren't any agents wanting to come and check we haven't changed anything, or a landlord wishing to seek repossession at any time.

It really has made a big difference to our lives. This is especially important to us, as my wife delivered our son two days ago and it will be so much more secure to bring him back to our own home."