Contractor mortgages

Contractor Mortgages

Contractors may have a strong chance of getting approved for mortgage financing. However, it will depend on the type of contract and how consistent your work is that will impact the amount of funding available for the property you wish to purchase.

This guide will give you all the information and mortgage advice you need to obtain a mortgage and also explain what evidence high street lenders may want to see based on the type and nature of your work.

Click the link below to discuss a mortgage loan with a specialist contractor mortgage broker so we can explain the contractor mortgage criteria for an application and then introduce you to contractor-friendly lenders.

Use our online mortgage calculator as a guide for your monthly repayments now

Are you a contractor and need a mortgage?

It’s possible to get a competitive mortgage deal as contractor mortgages are now widely available. Most lenders have updated their eligibility criteria to accommodate the growing number of people who want this type of work and it is best to speak with a specialist mortgage broker to begin arranging mortgages and discuss the mortgage loan amount available.

How you pay income tax will affect how a lender defines your contractor status, such a, if you are self-employed, you will pay your tax via self-assessment. If you work for an umbrella firm that pays your taxes and gives you payslips, you will be considered employed.

These types of contractors have a variety of mortgage options.

• Self-employed contractors
• Fixed-term contractors
• Short-term renewable contractors
• Umbrella company contractors
• Agency Workers
• Zero hour contracts
• Sub-contractors
• Professional contractors

Using your daily contract rate, lenders will calculate how much you can borrow, but on the other hand, others will consider average annual earnings over many years. Your time as a contractor and your consistent work patterns will all be considered.

The type of contract you are working under will play a significant role in assessing your mortgage application, therefore an experienced broker can help you determine the best way to present your contractor income to a lender.

What about if you are a first-time buyer?

This could be a problem for first-time buyers, however, it is not impossible and you can improve your chances of success by taking steps such as saving deposits, ensuring you have clean credit records, and collecting as much evidence as possible of your earnings as an independent contractor.

Your income and employment status will be considered if you apply for a joint mortgage with your partner. This could help boost your application, especially if they have been working full-time for a while.

If you can find a relative willing to guarantee your repayments, you might consider a Guarantor Mortgage.

Contractors: How to get a mortgage

These three steps will make it much easier to complete your mortgage application. We recommend this way of doing it…

• Step 1. Talk to a contractor mortgage broker. Instead of approaching high street lenders immediately, it is wise to consult a broker with extensive experience in arranging contractor’s mortgages. This is especially important if you are a first-time buyer or are unsure about the application process.

A professional mortgage broker can assess your contractor income, type of work and future contracts to determine how to get the mortgage you need. We arrange mortgages for contractors daily.

• Step 2. Gather all paperwork. Your application will be more solid if you have more documentation. Contractors will need to provide certain information that lenders require, including:
• Statements SA302 for the last three years (if you are paying your tax).
• Payslips, most recent P60 (if tax is deducted at source).
• Current contract terms (how much time is left?)
• Future projects and contracts that have been agreed upon (at least for 12 months)
• Your proof of the day rate
• Your contract mortgage broker can advise you on the details you should provide depending on your contract type and how much you are paid.

These are in addition to standard mortgage requirements, such as bank statements and proof of identity. For more information, take a look at the mortgage application guide.

• Step 3. Identify the right lender for your mortgage. You are now ready to apply. Your broker can help you find a qualified lender to assist with your type of work rather than just using it randomly.

For example, a broker might be able to determine if you are being paid at a daily rate.

To begin your journey of mortgages for contractors, click the link below. All of our mortgage brokers are regulated by the financial conduct authority.

Your application could be affected by the type of contract you have

There are many ways to be classified as a contractor as it all depends on the price you charge for your services and how much you get paid for your work. Lenders view each contract type differently when determining whether you are eligible for a mortgage.

• Self-employed contractors. Lenders will need copies of your SA302 statements for the last three years. They will then either calculate your annual income over these three years or take the lowest figure if they see evidence of significant fluctuations.
• Fixed-term contractors. When you apply for a fixed-term loan, most mainstream lenders require at least six to twelve months left on the contract. You will be considered an employee if your income is subject to tax at source.
• Short-term renewable contracts. Some lenders will accept short-term contracts of three to six months if the continuous work period is not less than twelve months. It would be a good idea to have evidence of future contracts.
• Temporary contract. You can be self-employed or employed depending on the income tax paid. Working for an umbrella business requires your most recent P60 tax overview, three months’ pay slips, and bank statements.
• Agency Workers. You should have a contract no longer than three months old and evidence of continuous employment over the past twelve months. Some lenders may require a reference from your employer.
• Zero-hour contracts. Acceptable contracts include those for NHS Bank Nurses, retained firefighters, and supply teachers. Lenders will require evidence of a minimum of 12 months track record.
• Contractors. I.T contractors, doctors, and accountants are all acceptable roles. Most lenders require a minimum of 12-month continuous contract, with evidence of at most six months remaining.
• Limited company. Not all lenders will consider your salary or dividends. If you are only taking a small salary and retaining profits, it would be a good idea to find a lender to consider these when deciding how much money you can borrow.

What happens if you are a subcontractor?

Mortgage lenders assess subcontractors in the same way as contractors. This is how mortgage lenders will evaluate if you can trade. Most lenders will approve you if you have a 12-month record of continuous employment and meet all their criteria.

Subcontractors enrolled under the government’s Construction Industry Scheme can use gross income from payslips instead of their business accounts or self-assessment for the mortgage provider’s affordability assessment.

Is it possible to get a mortgage for a contractor working within IR35?

Yes it is. However, your choices of lenders are likely to be smaller as many mortgage providers have yet to establish their contractor criteria within IR35. Some umbrella contractors and professionals with fixed-term agreements found they could not meet many lenders’ affordability criteria since the legislation was passed.

Although this has made it more difficult for new contractors than experienced professionals, those who trade as small companies have not drastically changed their affordability.

Do professional contractors get better deals?

Yes they do. This is possible because professional contractors are often highly paid and sought-after. However, the same criteria apply to contractor mortgages, and their applications are evaluated similarly to other contract workers.

Lenders who favour professional contractors may offer lower interest rates and higher multiples of income to lure people to their business. Our brokers have negotiated exclusive deals with the following professional contractors:

• IT contractors
• Locum doctors
• Barristers
• Seafarers
• Oil and gas contractors
• Professional athletes

What should you do if your contract expires?

Lenders will expect your contract to have 6-12 months remaining before applying for a mortgage. This will give lenders confidence that there is enough time left on your existing terms to allow you to pursue and agree on future work opportunities.

Talk to your mortgage broker if you have a contract that expires sooner than expected, within 3-4 months. This will allow you to provide additional information to the lender, such as:

• This is your track record as a contractor to that point
• Experience in your field of work
• Histories of regular contract renewals
• Existing contracts that have not been signed yet
• Referrals from clients/employers

What amount could you borrow?

It will depend on what type of contractor you are and how much income you have as well as the calculations used by your lender. Some lenders base mortgage offers on the borrower’s average income over the past two years. Others use the lowest income figure for that period.

Contractors with a pay-as-you-earn income will find that most lenders take the basic salary and any bonus or commission earned during this timeframe. Then, they apply an income multiplier to determine the maximum loan amount. Some lenders will use more than 4.5 times the salary.

Be aware that certain mortgage companies will limit the amount of your bonus or commission earnings, while others will take 100%.

The day rate of self-employed contractors is usually used to determine the maximum amount of borrowing. The lender will multiply this figure by the number of work days each week and divide it by 48. The lender will then multiply this figure by 4.5 or another income multiple to determine the maximum mortgage you are eligible for.

Use an online contractor mortgage calculator.

An online mortgage calculator will give you an estimate of how much you can borrow. You may prefer to speak directly with a mortgage broker for more accurate advice.

What lenders offer contractors mortgages?

The type of work you do will determine which lenders are most approachable for you. Some mortgage lenders prefer certain types of contractors over others. Metro Bank, for example, won’t consider agency work in its affordability calculations. Bath Building Society and Accord, however, won’t lend short-term renewable contracts to individuals.

These are just a few potential restrictions you might encounter from specific lenders.

• TSB only lends to fixed-term contractors with at least two years of experience in the same field or who have worked for the same employer for a minimum of twelve months. The agreement must have at least six months remaining.
• Natwest won’t lend to sub-contractors until they have worked in the same capacity for at least 12 months. They will also ask for evidence of work offered if income is less than £75,000 annually.
• Halifax insists that zero-hour contract workers need at least 12 months of history with the same employer, or in the same field, before being considered for a mortgage.

This is just a tiny sample of the services that mortgage lenders offer contractors. This market can be complex and challenging to navigate on your own.

You can’t guarantee that a lender won’t reject you if you approach them directly. Plus, you would limit yourself to one set of mortgage deals. This can lead to rejection and being offered unfavourable rates.

The good news is that we have a broker specialising in contractor mortgages. They have the contacts, knowledge and experience to increase your chances of success. Begin your journey below:

What interest rate should you expect?

Although mortgage interest rates for contract workers can be slightly higher than those of PAYE employees, this is not always true. Contractors’ introductory rates can be anywhere from 1.64% to 2% at the time of writing, depending on whether there are any risk factors.

Sometimes, they can be higher as some contract work is considered riskier than full-time employment. Lenders might increase their rates to protect themselves.

Getting a mortgage as an independent contractor at a low interest rate is possible. You can also reduce the risk associated with your trading style.

• Additional deposit
• You are repaying any outstanding debts.
• Wait until you have two years of trading experience
• A specialist broker can help you apply for your mortgage

Contractors can remortgage

Your remortgage application is more straightforward if you were a contractor when you took out your mortgage. Your income and employment status will still need to be assessed by your mortgage lender due to the unpredictable nature of contract work.

Things can get a bit more complicated for homeowners who have been contracting since they took out their mortgage. You might get a different range of rates or deals than if you were a PAYE worker.

You might not be eligible for your current lender’s criteria. Applying with them would only lead to disappointment. Searching the entire market before settling on a lender is a good idea, especially if your contracting experience is new. Some lenders are more equipped than others to offer contractors remortgages.

These are the key takeaways from this guide.

• A contractor can still get a mortgage. Your chances of getting a mortgage will depend on how experienced you are as a contractor, how long you have been doing it, and how much you earn. However, there are options available for those who trade in this manner.
• A contractor mortgage broker is highly recommended. Mortgages for contractors can be complicated, especially if your income is not standard. However, a broker specialising in arranging them can help you level the playing field. A qualified advisor will be able to find you the best deal for your specific circumstances, contract type, and financial needs.

FAQs

Can I get a buy-to-let mortgage if I’m a contractor?

Yes. And the complexity of your income may even be less of a problem here. Buy-to-let mortgages are often assessed on the property’s rental income, not your personal earnings. Many mortgage lenders offer special rates and deals to self-employed landlords that trade as a limited business.

Can I get a contractor mortgage while on maternity leave

This is possible, but it can be more challenging as lenders may feel there is more uncertainty about your employment situation. If you can show that you have contract work after your maternity leave ends or have a track record of renewing contracts in the same industry, this will significantly help your case.

Lenders may offer borrowing options if you can prove that you can afford your mortgage payments after you return from maternity leave.

Can I get a 100% contractor loan?

You may not have many mortgage options if you don’t have a deposit, as self-cert mortgages are no longer available for contractors in the UK.

However, a few mortgage options are available for those with no deposit, but they require the support of a family member, such as a guarantor mortgage. Contact us today to get the best deals and advice right away