Umbrella Company Mortgages: Your Comprehensive Guide

Before we dive into the intricacies of umbrella company mortgages, it’s crucial to understand what an umbrella company is. An umbrella company is a legal entity that acts as an employer to agency contractors who work on temporary contract assignments. They operate in various sectors, including insurance, banking, finance, and real estate, offering various financial services, including mortgage loans.

Umbrella organisation function similarly to banks but operate without physical branches. Instead, they have offices where they offer their services. Their primary role is to provide financial support to their clients, often through loans with competitive interest rates.

When applying for a mortgage, the lender needs to know who is borrowing and their financial status, which includes regular income. However, proving this income can be more complex for those working for an umbrella company. Even though you might have a steady income, tracing its source can be a convoluted process, as it leads back to the umbrella company you work for.

In the UK, there are an estimated 600,000 umbrella company employees as of 2021. Nine in every ten public sector contractors now use umbrella company payment structures. Despite these numbers, obtaining a mortgage through an umbrella company can be challenging. A significant number of lenders will not accept applications from contractors working through an umbrella institute. Those who do will assess your situation case-by-case, which may involve complex affordability calculations and terms.

In the following sections, we will explore the challenges faced when securing a mortgage through an umbrella company.

Post Topics

What are the pros and cons of working for an umbrella company?

What is an umbrella company mortgage?

Mortgage Statistics for Umbrella Company Employees in the UK

Why is it difficult to get an umbrella company mortgage?

What are the eligibility criteria for an umbrella mortgage?

How do I prove my income for an umbrella company mortgage?

What is an Umbrella contractor mortgage?

What are the documents required for an umbrella contractor mortgage?

Are there any drawbacks to an umbrella scheme mortgage?

Next Steps – Umbrella Contractor Mortgage

FAQs – Umbrella Company Mortgages

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What are the pros and cons of working for an umbrella company?

The principles – and advantages – of working with these companies are described by the aptly-named website Umbrella. While we are not accountants, this information cannot be construed as advice – this type of company may be helpful if you are a self-employed, independent contractor looking for a more straightforward organisational structure than setting up your own limited liability company. The latter involves such administratively tiresome – and expensive – chores as maintaining a payroll, chasing your invoices payable, and dealing with your tax affairs.

Instead, you may work for such a company as an independent professional under a temporary contract of employment so that the organisation takes responsibility for all those payrolls, invoices, and tax filing chores.

Indeed, some of the tax advantages in a contractor forming a firm may be undermined by the introduction of changes to IR35 rules, now due to come into effect from April 2021, explained ITContracting on the 14th of February 2020. For example, suppose you are an employee of such a company. In that case, however, IR35 becomes irrelevant because you are taxed as an employee, explains Contractor UK, But the advantages of being employed by such an organisation may become disadvantages when applying for a mortgage.

What is an umbrella company mortgage?

As we have explained, an umbrella mortgage is just that – a mortgage specifically designed to be granted to an independent contractor employed by an umbrella company.

These mortgages may not be widely available from regular high street lenders but can be arranged by specialist lenders prepared to consider the exceptional earning patterns and employment status of a contractor working for an umbrella company.

If you are a sole trader, you can also apply for similar mortgages. Read more about sole trader mortgages in our other article.

Mortgage Statistics for Umbrella Company Employees in the UK

Here are some statistics related to umbrella institutes and mortgages in the UK:

• In the UK, there are an estimated 600,000 umbrella company employees as of 2021.

• According to a recent study by Mortgage Solutions, more than three-quarters of self-employed people in the UK are worried about their chances of getting a mortgage. 77% of respondents believed that being self-employed made it harder for them to be approved for a mortgage.

• According to Kensington Mortgages’ new self-employed index, nearly a third (30%) of self-employed individuals in the UK are “very confident” about the future of their businesses over the next six months. The index is based on a survey of 550 self-employed people and will be published quarterly. The majority of respondents (67%) were male and aged between 35 and 54. The most confident age group was 35-44, with 40% of self-employed people in this category claiming to be “very confident.” In terms of future investment, 26% of respondents said they will definitely invest in their business over the next 12 months, with the most popular method being personal savings (48%), followed by business loans (19%) and remortgages (1%). Kensington Mortgages expects the self-employed index to become a valuable tool for financial advisers.

These statistics highlight the growing demand for mortgages among self-employed individuals, including umbrella company employees, as well as the challenges they face when trying to obtain a mortgage.

Why is it difficult to get an umbrella company mortgage?

Some mortgage lenders are reluctant to disentangle the more complicated income stream of a contractor employed by an umbrella company. A typical arrangement is for the umbrella company to pay the contractor a minimum wage for hours worked and top this up with bonuses and commissions on the income generated. You might also have other income streams which are more difficult to disentangle from your basic salary as an employee.

For all these reasons and the fact that some lenders will, therefore, decline a mortgage to employees of the umbrella organisation, you may need to apply for a specialist umbrella firm mortgage.

What are the eligibility criteria for an umbrella mortgage?

Different mortgage providers naturally have separate policies. But some of the more general criteria for eligibility include:

• a history of at least 12 months working for an umbrella company – preferably with at least one renewal of your contract with the company;
• the lender may also have a preference either way for your working for a single umbrella company or multiple companies;
  
• some lenders have a lower age qualification of at least 25;
• concerning your income, some lenders may consider any bonuses and commissions, but others may not – as with any mortgage application, the higher your income, the better; and
• the healthier your credit history, of course, the better any lender is going to like it.

How do I prove my income for an umbrella company mortgage?

There are various ways to prove your annual income, working in such organisation. The good news is that you are likely to borrow more on an umbrella company mortgage than if you are self-employed. That is because your umbrella company can provide the mortgage lender with written proof of your regular earnings – based on records likely to be complete and reliable than any you kept yourself.

Furthermore, an umbrella company loan may also consider the value of contracts you have undertaken as an employee of the company and not just the basic salary you have earned as your annual income.

What is an Umbrella contractor mortgage?

Umbrella contractor mortgage loans are available from most mainstream banks and building societies. However, they tend to be less common than other types of mortgages. This is partly because few people know about them, so fewer applications come forward. It’s also true that the interest rates charged by umbrella loan providers are generally slightly higher than standard variable rateThe interest rate charged by the lender that can vary over t... products.

However, this doesn’t mean that you won’t find an umbrella organisation mortgage provider willing to offer you a competitive deal. It is always better to include a specialist mortgage broker at the time of application to get a suitable mortgage deal.

What are the documents required for an umbrella contractor mortgage?

To obtain a mortgage, umbrella company employees are required to provide several documents to prove their income and employment status, including:

• A minimum of 12 months’ worth of payslips
• A minimum of 12 months’ worth of bank statementsA record of a borrower's financial transactions often requir...
• A contract outlining the terms of their employment
• Tax returns from the previous three years
• Proof of ongoing work contracts
• Proof of identity and address

There are many other documents that you may need to provide for such mortgages, we would suggest you contact an experienced mortgage broker before starting the application process.

Are there any drawbacks to an umbrella scheme mortgage?

We have already touched on some of the potential drawbacks. The initial drawback in turning to an umbrella company for your employment as a contractor is that many prominent mortgage lenders will not consider your earnings as proof of the necessary regular income.

As we have also mentioned, you may need to choose carefully between those specialist umbrella company mortgage providers who favour your working for just a single company and those that might welcome your employment by multiple umbrella organisations.

The point is that – although the pool of potential providers is relatively limited – there are umbrella company mortgage lenders likely to offer a range of mortgage options, but you may need to contact a mortgage broker.

Next Steps – Umbrella Contractor Mortgage

If you are a contractor currently employed by an umbrella company and are thinking about applying for an umbrella company mortgage, remember that here at NeedingAdvice.co.uk Ltd, we have the expertise and experience to offer all the help you may need. So don’t hesitate to get in touch with us today to see how we can help.

FAQs – Umbrella Company Mortgages

What is an umbrella company mortgage?

An umbrella company mortgage is specifically designed for contractors and temporary workers operating under an umbrella company. This type of mortgage takes into account the unique income structure of umbrella company employees, which can include a base salary plus bonuses and commissions. While some mainstream lenders may be hesitant due to the complexity of income verification, specialist mortgage brokers can help connect you with lenders who understand these employment arrangements.

How do tax avoidance schemes affect umbrella company mortgages?

Engagement with non-compliant umbrella companiesCompanies that provide payroll and administrative services t..., known for tax avoidance schemes, can severely impact one’s ability to secure a mortgage. Tax compliance checks by lenders are rigorous, and involvement in tax fraud or schemes promoted by such companies can lead to reputational damage and affect mortgage approval. It is crucial to ensure that the umbrella company is compliant with income tax and national insurance obligations to avoid any complications.

What rights do agency workersWho Are Agency Workers? Agency workers are individuals emplo... have when applying for a mortgage?

Agency workers, including those hired through recruitment agencies, are entitled to the same basic employment rights as permanent employees. This includes the right to prove their income for mortgage applications through payslips and other financial documents. However, securing a mortgage may depend on the length of the current contract and the stability of income, which are scrutinized during the mortgage underwriting process.

What is the role of a mortgage broker in securing an umbrella company mortgage?

A mortgage broker, particularly one experienced in contractor mortgages, plays a crucial role in helping umbrella company contractors navigate the complex mortgage lending landscape. They can advise on the best mortgage products, from affordable mortgages to exclusive deals that suit the fluctuating income patterns typical of contract work. Brokers facilitate applications by ensuring that all forms of income, including day rates and assignment rates, are appropriately presented to potential mortgage lenders.

What should I look for in a mortgage lender if I work for an umbrella company?

When searching for a mortgage lender, umbrella company contractors should look for lenders that offer specialist products tailored to their unique employment circumstances. These specialist lenders often have a deeper understanding of contract-based employment and can provide more favorable mortgage terms, considering multiple streams of income and the overall financial picture of the borrower.

How do I calculate my potential mortgage amount as an umbrella company contractor?

Mortgage calculators can be useful tools for umbrella contractors to estimate their potential borrowing amount. These calculators typically require inputs such as income levels, including both base salary and additional earnings like bonuses. Most lenders will consider lending 3 to 5 times your annual income, depending on your credit score and overall financial health.

What are signs of a fraudulent umbrella company?

Recognizing a fraudulent umbrella company is crucial for maintaining financial and tax compliance. Signs of fraud include non-payment of income tax and national insurance, unclear payment structures, and offers of salary advances that seem too good to be true. Contractors should perform thorough checks and seek employment through reputable employment agencies to avoid any legal or financial repercussions.

How does the umbrella company structure impact my tax liability and mortgage eligibility?

Working under an umbrella company means your income tax and national insurance contributions are typically handled by the employer, simplifying your tax affairs. However, the structure can complicate mortgage eligibility since lenders will scrutinize the stability and compliance of the umbrella company. A compliant and well-established umbrella company can positively influence your mortgage application by providing clear and consistent proof of income.

Can I apply for a mortgage directly with a mortgage provider as an umbrella company contractor?

Yes, you can apply directly, though it is often beneficial to work with a specialist mortgage broker or adviser who understands the nuances of umbrella company employment. These experts can help streamline the process, enhance your chance of mortgage approval, and potentially secure mortgage funding that respects your unique employment status and income structure.