Contractor Mortgages

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What is a Contractor mortgage?

There is no mortgage product specifically aimed at contractors, however, with the continued rise in independent contractors and freelance workers in the UK, many lenders have had to adapt to consider their applications.

Much like other self-employed workers, the way that your mortgage application is assessed is different to your employed counterparts. The actual scope of mortgage products available to you is largely the same.

There are even some specialist lenders who offer mortgage deals to those contractors working in particular professions, such as doctors and similar medical professionals.

How much can a Contractor borrow for a mortgage?

Affordability will be the predominant factor that the mortgage lender uses to decide your loan amount. Much like any other mortgage application, it depends on how much your typical annual income is and will vary from lender to lender.

There are specialist mortgage calculators available which can help you establish a rough estimation of how much you can borrow.

Help to Buy mortgages are an option for contractors and can be especially helpful if you are a first time buyer. The Help to Buy scheme is a government initiative which allows mortgage applicants to borrow 95% of the cost of their home.

How is a Contractor’s income assessed for a mortgage?

In order to assess affordability the lender will typically average out your earnings over time. If your earnings tend to differ dramatically from year to year, however, they are more likely to use the most recent year’s earnings. This could mean you can borrow less than someone with a more stable income.

On top of your current and recent earnings history, many lenders will want to look at your CV to establish your longer term earning potential. It’s important to note that if you are not currently contracting or do not pay UK tax on your current income, then you will not be able to obtain a mortgage unless you have a change in circumstances.

Mortgage rates for contractors can be as competitive as they are for other applicants with some lenders. A contractor friendly lender will consider income amount, deposit size and mortgage type in order to establish your mortgage offer, in much the same way as they would for an employed applicant.

Getting a mortgage when you are paid a day rate?

If you earn at a standard day rate, some lenders may be willing to use this multiplied by your annual working days, although this will usually require that you have a twelve month contract in place.

Getting a mortgage as a new contractor

As mortgage lenders seek financial stability, securing a mortgage as a new contractor can be difficult. A high street bank then they will usually ask to see three years worth of accounts, meaning that this route is unlikely to be an option for you.

How do you strengthen your mortgage application as a contractor?

There are a number of ways that you can strengthen your mortgage application as a contractor. Largely, any lender is looking for stability, so anything that instils trust in your ability to maintain mortgage payments will be beneficial. For example:

  • Lowering your loan amount by offering a larger deposit
  • Checking that you have a strong credit score and taking time to improve it, if not
  • Establishing some sort of contractual agreement with a client, particularly if there is evidence of previous renewals
  • Providing as much financial management information as possible, both for incomings and outgoings
  • Not taking too much time between (including holidays) contracts in the year prior to your application
  • Making your application with a partner who is employed full-time
  • Applying with a guarantor

How mortgage affordability is assessed for a Limited Company?

If you are a contractor trading as a limited company, the mortgage application process will differ slightly from independent contractors. In this case the mortgage lender will only consider your salary and dividends, rather than the total business income.

How can a Mortgage Broker help if I’m a Contractor?

As traditional high street lenders are set up to serve traditional full-time employees, they will not usually be the best option for contract workers. If you’re a contractor, there are specialist brokers who are able to advise you which lenders are most likely to offer you a mortgage based on your individual circumstances.

It should be possible to obtain competitive interest rates as a contract worker and mortgage brokers are able to find the best mortgage deal available to you. They can assess your application to determine the likelihood of acceptance and advise you how to improve upon it, where necessary.