Contractor Mortgages

Contractor Mortgages – how do they work? 

For a contractor looking for a mortgage, it can be tricky to decide where to start. Which lenders accept contractors and how can you make sure you get a good deal on a contractor mortgage?

What is a contractor mortgage?

There aren’t any specific mortgage products just for contractors – but some lenders are more willing to take a contractor on as a customer. So a contractor mortgage just refers to a mortgage that’s awarded to someone who works on a contract basis.

Different lenders have varying opinions of the Self-Employed and whether they are a good potential customer. Some lenders are concerned by the gaps that contractors can have between jobs, or the variable nature of their income.

Others meanwhile recognise that contractors are often well paid and responsible. So finding the right mortgage company can be very important. 

How much can I borrow as a contractor?

The amount you can expect to borrow is based on a multiple of your income – usually four to five times your annual salary. The challenge for a contract worker, then, is to confirm what your income really is. 

Some lenders will use your contract rate or day rate as a basis for their calculations. You will need to confirm how many days a week you work and how much holiday you take in a year.

Other lenders will look for details of your annual income. Different lenders will greatly vary in how much they will offer you, so it’s well worth comparing lots of options. 

How are contractors assessed by mortgage lenders?

Every lender has their own unique criteria for customer assessment. When you apply for a mortgage you will need to provide various documents: recent bank statements, one to three years’ accounts or tax records so that the lender can calculate your income and the mortgage loan amount. How you have set up your contracting business can also play a role. 

Sole trader contractors

Sole traders usually need one to three years’ self-assessment forms to confirm your annual income. If your income varies a lot year to year, most lenders take an average. 

Other lenders may base their mortgage offer on your day rate and the length of your current contract. 

Fixed term contractors on PAYE

For fixed term contractors on a monthly salary, lenders often base their calculations on that income. You will need proof that you have been contracting for at least six months and that there’s six months or more left on your current contract.

Limited Company

If you are the director of a Limited Company, a lender might request one to three years’ certified company accounts. Many will take your stated salary as a company director, plus dividends, as your income. Some might also include your net profit.

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 with the umbrella company.