Barclays Update

We’re improving the way we assess income for certain contractors

We are constantly looking out for ways we can improve our residential and buy-to-let mortgage proposition, and how better we can meet the needs of you and your clients. Following your feedback, we are pleased to confirm an enhancement to our contractor policy effective tomorrow, Friday 22nd April.

What are we changing?

For some Ltd Company contractors, you will now be able to apply a daily rate calculation which should allow them more borrowing power than the standard self-employed process.

Important – You will need to continue to treat your client as self-employed if they:

• are a sole trader or LLP, OR
• have more than 1 contract, OR
• have set up a limited company and employs other contractors
• are <100% owner of the company

Otherwise, for self-employed contractors who earn ≥£218 per day or ≥£50,000 (per contractor/per contract) per annum, instead of using HMRC declared income you can use a daily rate calculation.

What is the daily rate calculation?

To calculate gross income, you will:

• Identify the Daily Rate of Pay (excl. VAT) from the 2 most recent contracts & take the average or most recent, whichever is lower (if this is an hourly rate a maximum 40 hours can be used unless a lower figure is specified),
• then multiple by 5 and,
• then multiple by 46 to give the annual figure

Please note – The amount used to calculate income must be the lower of the Daily Rate shown on the contract or the amount received on the business bank statements. There is also a maximum 85% LTV on residential applications when using the daily rate method.  Where >85% LTV is required please use our standard self-employed policy.  

Recording Daily Rate Income in our application systems:

Contractors using the daily rate calculation must be recorded as ‘Employed – Fixed Term Contract’ in our application system.  Here’s how you do it…

• Add an employed Income record
• The basis of employment should be recorded as ‘Fixed Term Contract’
• Record the annual gross income amount obtained from the daily rate calculation above in the ‘Annual Basic Income’ field

Additional commitments to be included using the daily rate calculation:

In order to use the daily rate calculation, you need to understand if your client has any business loans.  You’ll need to:

• Review the business bank statements to understand if they have any business debts such as bounce-back loans and enter them as financial commitments as you would do for an employed customer
• Any regular payments made by the company should be considered when reviewing bank statements
• The payments should be entered into our application system, selecting ‘personal loan’ from the available options  
• When inputting these details please enter the monthly payment as shown on the business bank statements, and put the outstanding balance as £1 and the remaining term as 1y 0m

The above steps will ensure the correct affordability calculations are completed.

Documentary requirements:

As a reminder, for all contractors we will require the following:

• 12 months’ contracts (a minimum of 2 contracts must be provided if latest contract covers >12mths)
• 3mths remaining on the current contract or evidence of the next one

There must also be no more than a 6-week gap (underwriter discretion can be applied to maternity leave) between contracts AND, for Ltd company contractors using the daily rate calculation you must provide:

• 3mths personal bank statements
• 3mths business bank statements

If your client does not meet the criteria to use the daily rate calculation they will need to follow the self-employed policy.

This change will apply from tomorrow, Friday 22nd April 2022, and will not impact previously submitted cases.