Two high street banks have changed their lending policy to help contractors falling inside IR35 to apply for a mortgage
Following the introduction of IR35 reform in the private sector, Virgin Money and Clydesdale Bank have amended their policy for lending to contractors who have been placed inside IR35.
The new policy means that the banks, which are part of the Virgin Money UK plc group, will offer specialist mortgages to contractors operating inside the legislation.
Contractors paid via these means must provide at least two months of payslips, which takes into account gross pay after the deductions of statutory employer costs and payroll service costs.
Applications to be considered on case-by-case basis
The policy states because of the “complex contractor situations”, each application would be assessed by an underwriter and considered on a case-by-case basis.
Sarah Green, Head of Customer Acquisition at Virgin Money, said: “As a bank we understand that contractors need mortgage products that are flexible enough to accommodate their professional and financial situations and that is why, following the IR35 changes we have made these positive amendments to our lending policy.”
Commenting on the move, Nick Morrey, Product Technical Manager at independent mortgage broker, John Charcoal, said the self-employed market is “constantly being battered by changing circumstances and policies by lenders.”
“Guidance on IR35 change ramifications seems to be a little thin on the ground though but it is happening now.
Pandemic significantly affecting self-employed income too
“Lenders would be well advised to consider what they need to do going forward, as some have buried their heads in the sand, but we will likely see a large drop off in perfectly robust self-employed mortgage applications”, he added.
Morrey explained that IR35 reform will have an impact, but it is currently being compounded by the effect of the pandemic on earnings:
“Many will re-examine how they declare their earnings”, meaning “lenders will have to formulate how they assess their applications.”
And any “increases in financial commitments or reductions in income could well form part of the affordability assessment – further reducing maximum loan sizes.”
Virgin just refused me a mortgage because I had one year working inside IR35, which led to my company making a loss. The loss was due to paying me contracted wages and other company expenses.
Their underwriter stated that because there is a loss they cannot proceed. So where are they taking this on a case by case basis.
Any contractor jumping between inside and outside IR35 could find their selves in exactly this position.
The underwriter made the decision without looking at my SA302’s or the Profit loss statement which clearly shows where the losses are.