Contractor Mortgages

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Contractor Mortgages - Exploring the options

Working as a contractor can be a profitable and flexible job, but where do you stand when it comes to mortgage options? The good news is that many lenders welcome contractors as customers and make the application process much simpler.

What is a contractor mortgage?

A contractor can access the same mortgage deals as everyone else – the only difference may come in how the lender assesses your income.

Some lenders are better geared up to take on self-employed customers than others and many recognise that contractors are often well paid and responsible borrowers. We will help you find the most supportive lenders to consider.

As a contractor, how much can I borrow?

Lenders base the mortgage amount on a multiple of your income – it’s usually four to five times your annual earnings. The main challenge for a contractor is to confirm what your income really is.

Some contractor-specialist lenders might accept your contract rate or day rate as a basis for their calculations. They will ask how many days a week you work and allow for annual holiday time.

Other lenders will categorise you as self-employed and will request evidence of your annual income. Because of that, you could receive a wide variety of mortgage offers, so it’s a good idea to shop around.

How much deposit do I need for a contractor mortgage?

There are no hard and fast rules about deposits for contractors, but as with any mortgage putting down a bigger deposit means better rates and a wider choice of lenders.

The minimum deposit is 5%, but you will need good credit for these deals and they are limited. If you can contribute 20% or more, your monthly payments will be lower and you will gain more competitive interest rates.

How do lenders assess affordability for a contractor mortgage?

Every lender assesses clients against their own criteria. How you’ve set up your contracting business can influence what the lender will ask for as part of the mortgage application:

Sole trader contractors
Sole traders often need one to three years’ self-assessment forms to confirm annual income. Certain lenders may base their mortgage offer on your day rate and the length of your current contract.

Fixed term contractors on PAYE
If you’re a fixed term contractor on a monthly salary, lenders usually base their calculations on that income. They often want you to have been contracting for at least six months and have at least another six left on your current contract.

Limited Company
If you run your own Limited Company, a lender might want to see two or three years of accounts. Many will assess you on the stated salary as a company director, plus dividends. Some might also include your net profit in calculating your income – which may mean you can borrow more.

Umbrella company contractors
Some contractors operate under an umbrella company. In this case lenders will want your work history. It can help if you have renewed your contract.

What can I add to my mortgage application to improve my chances of approval?

Mortgage approval is all about meeting the lender’s criteria. Talking to a Mortgage Broker is a great way to make sure that you only apply for mortgage products you qualify for.

You will be a more attractive customer to a lender if you have a good credit rating. Past credit issues won’t necessarily mean you can’t get a mortgage, but you may receive less competitive rates. Bear in mind that lenders will want to see 4-6 months of bank statements.

Working as a contractor over the relatively long term is also helpful. If you are on your first independent contract, it is often worth waiting until you have at least six months experience, preferably more. Lenders may also be nervous if there are significant gaps between your contracts unless you can account for them.

How can Vivid Mortgages help with Contractor Mortgages?

We specialise in mortgage advice and do all the legwork to secure a mortgage that works for you. We look at your specific situation as a contractor to identify the most appropriate mortgage lenders and products, and advise you at every step. Contact us today to see how we can help you. 

Vivid Mortgages are an appointed representative of Quilter Mortgage Planning Limited, which is authorised and regulated by the Financial Conduct Authority. We are registered in England and Wales.

Your property may be repossessed if you do not keep up with your mortgage repayments.

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