Getting a Mortgage as a Contractor
Becoming self-employed, starting your own business and being your own boss can come with many perks. However, there can be a few drawbacks too – such as the ability to obtain a mortgage. Thankfully, many specialist lenders have filled this gap in the market, making it easier to get a contractor mortgage.
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What we cover in this guide
- Can I get a mortgage as a contractor?
- Read our self-employed mortgage guide
- Try our self-employed mortgage calculator
- Who can get a contractor mortgage?
- What type of contractor mortgages are available?
- How to get a contractor mortgage
- What documents do you need to have for a contractor mortgage?
- I have just started contracting – can I get a mortgage?
- I am on a short-term contract – can I get a mortgage?
- What deposit do I need for a contractor mortgage?
- How much can I borrow with a contractor mortgage?
- How much contract history do I need?
- Can I remortgage as a contractor?
- Mortgage lenders for contractors
- Finding the best contractor mortgage rates
- Frequently asked questions
Can I get a mortgage as a contractor?
Yes, it is possible to do so, although it’s not always straightforward. Don’t let this deter you, though, because there are now mortgage deals available specifically for contractors.
As a contractor, you probably don’t have two or three years’ worth of accounts. More mainstream lenders usually like to see this when assessing self-employed applications.
However, specialist contractor mortgages are arranged in the knowledge that you are paid a daily or weekly rate. So, certain lenders will consider your contract rate when making an affordability assessment.
Fill out our quick and easy Self-employed calculator below. We only require a few details to see how much you may be able to borrow.
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Who can get a Contractor Mortgage?
These kinds of mortgages are typically designed for two types of people:
- People employed on a short-term or fixed-term contract basis
- Those who are self-employed but working through one company–usually an industry specialist or tradesperson (e.g. IT engineer, or electrician).
If you have worked in the same type of role or employment for a while, it may be possible to get a mortgage at the start of a new contract, if your terms and income are consistent. The various lenders in the mortgage market often take different views and apply their own set of criteria according to the type of contract you are working under, so it is recommended that you speak to a specialist mortgage advisor to find out all your options and determine which lender will be the best one to meet your needs.
Why might a Contractor Mortgage be a better option?
A mortgage designed for contractors can come with some benefits. As the indicative figure for your annual income is calculated using multiples of your day rate, you might often find that you will be able to borrow a surprisingly larger sum than with a standard mortgage. Lenders will often restrict the level of borrowing available to small business or limited company owners due to them drawing a smaller salary plus dividends, while an IT Contractor’s mortgage will have been calculated using their current contract rate projected as an annual salary, which could be a significantly higher figure.
What type of Contractor Mortgages are available?
There are five main categories that your contract could fall under with lenders looking at different key points in each:
- Agency workers. In addition to your payslips, you’ll need to supply your contract and evidence that shows your employment history. While many lenders have a flexible approach to agency workers, not all of them are willing to lend to them.
- Self-employed. Typically, a 6-month minimum contract should be in place for a self-employed mortgage
- Fixed-term contracts. Typically, you’ll need to prove previous experience as a contractor
- Working under an ‘umbrella company’. A 12-month track record is usually required
- Zero-hours contracts. Lenders will usually want to see a 12-month working history. But, depending on the lender and your circumstances, it might be possible for you to apply with less than a year’s records
How to get a contractor mortgage
Mortgages are always influenced by the lender’s assessment of your income and their perceived risk level. As a contractor, income isn’t always as certain, so getting a mortgage can be more challenging and time-consuming.
By taking the right steps and using a broker, you can significantly increase your chances of being accepted.
What documents do you need to have for a contractor mortgage?
You will need to provide the following documents to support your application:
- A copy of your current contract. Lenders will need to see how much you are earning now and the length of time remaining in the current contract period. If your contract will be coming to an end in the near future, they might want to see a promise of renewal or extension, or evidence of new contracted work shortly coming into place.
- Bank statements for the last three months. This is to prove you have been earning regularly and at an affordable level for the mortgage you’re applying for.
- A copy of your CV. Your CV will prove your history of work in your role or specialisation as a contractor.
- Proof of I.D. All lenders need to know exactly who they are lending to. They will also make an in-depth check of your credit score and records.
As we often remind people looking for a mortgage, all lenders have different criteria. Some may ask for other information in addition to the above. However, most specialist lenders will find this sufficient to secure a mortgage.
I have just started contracting – can I get a mortgage?
This may seem like a challenging time to get a mortgage, but don’t worry, you should still be able to secure one.
Although, a lot will depend on your circumstances and the duration of the contract you now have in place. Lenders usually expect to see a minimum 6-month term.
The key is to establish the sustainability of income. Your chances of being accepted are also likely to be influenced by the type of work you are doing, as well as your history of employment in the same or a similar role.
I am on a short-term contract - can I get a mortgage?
You should not be prevented from obtaining a mortgage because you are on a short-term contract.
Lenders usually make decisions based on your proven income. So, if you can show a steady history of earnings and employment, then it will count in your favour.
What deposit do I need for a contractor mortgage?
As with most mortgages, there is no set rule for the level of deposit you need to put down.
The typical minimum of 5% could be sufficient. However, the larger the deposit you can provide then, usually, the better the terms of your mortgage. However, if you’re seen as a risk because of a bad credit history, it’s likely you’ll require more.
A bigger deposit will usually give you access to deals with a lower interest rate and repayment amounts. But, as ever, a lender’s decision will depend on their analysis of your affordability.
How much can I borrow with a contractor mortgage?
Your level of borrowing will depend entirely on the figure the lender uses for your annual income.
Lenders typically take your day rate, multiply it by the number of days you work per week, and then multiply that by 48. This gives them an indicative figure for annual income. They will then multiply this number by 3.5 to 5 times to get the figure you’ll be able to borrow.
For example, if your daily rate is £400 and you work 5 days a week, for 48 weeks a year, then an indicative annual income would be £96,000. Multiplying this by 3 to 3.5 means that you could be looking at a mortgage of £336k to £480k.
How much contract history do I need?
Many people assume that you will need to show at least three years’ worth of business accounts to get a mortgage. However, this is no longer true. You’ll be pleased to know that you can actually get a mortgage with as little as a copy of your current contract.
With a large section of the workforce in need of a mortgage, new, smaller, and more flexible lenders have entered the market. Fortunately, needing to supply three years’ worth of accounts is no longer always necessary.
A specialist contractor mortgage broker will not demand to see the same level of documentation as mainstream lenders. This means that they will be happy with different methods of showing a sustainable income. They understand the way your income is reported on paper may not be a true reflection of your affordability. Therefore, packaging your application to show your actual earnings and ability to pay.
Can I remortgage as a contractor?
Yes, you can. However, contractors will find that some of the same challenges they faced initially will still apply when remortgaging. This is because the application process for a new mortgage is very similar to that of a first-time mortgage.
Mainstream lenders will often have more stringent criteria for assessing income and affordability. They may request up to three years’ worth of business accounts. If you’re a contractor, you’ll likely have better luck with a specialist contractor mortgage lender.
It’s a good idea to regularly check that you have the best deal available, or you could be wasting money. Homeowners regularly fall into the ‘inertia’ trap that mortgage companies love. This is where they are happy to take the easiest option of staying in a deal that might not provide the best value. Others allow themselves to slip into the lender’s standard variable rate at the end of an introductory period.
In either case, the result is the same – you will be paying more than you need to. So, to check you are on the most competitive deal, look at your annual mortgage statement. This will give you a range of information such as:
- Interest rates
- The type of mortgage (e.g. tracker, fixed rate, etc).
- When your current deal will expire.
Keep yourself up to date with the headline rates and terms available in the market. This will give you a context for considering your own current mortgage deal. You don’t need to inspect the listings every week, but perhaps every year when you get your mortgage statement.
Take a bit of time to browse through mortgage lender’s websites, some best-buy tables and, of course, the comparison sites. This will indicate whether your mortgage is still providing the best value.
If you are unsure whether to remortgage or not, get in touch. Our expert advisers can assess your situation and help you come to a calculated decision.
Mortgage lenders for contractors
Some mortgage lenders can be seen as more ‘contractor-friendly’ than others, but there is now a range of lenders who are happy to consider applications from self-employed contractors. With no best mortgage lenders for contractors, you should instead be looking for a lender that best suits your circumstances.
As mentioned previously, specialist lenders will be the best bet for many contractors. This is because their criteria can be more accommodating when compared to mainstream lenders. However, your access to a mortgage will depend on your income stability and the lender’s assessment criteria.
Some lenders we have commonly used in the past when dealing with contractor mortgages :
- Halifax
- NatWest
- Kensington
However, keep in mind that these lenders having worked for someone else doesn’t necessarily mean they will for you. Every application is different, so do your research and take time to look around before applying.
Finding the best contractor mortgage rates
In most circumstances, the interest you pay is no different to that paid by someone in conventional employment.
The rate of interest you pay is largely down to your verified income and the size of your deposit.
Contractors can access all kinds of mortgages from different lenders. If you’re looking to get a mortgage as a contractor, get in touch.
FAQs
- Can I get a Right to Buy mortgage if I am a contractor?
- Can I get a Shared Ownership contractor mortgage?
- Can I get a contractor mortgage if I have bad credit?
Yes, you should be able to. Be aware, though, that not all lenders will consider this kind of application. You may also need to supply a personal deposit on top of the council deposit. This is usually a minimum of 5%.
However, decisions on mortgage lending are generally based on an assessment of your income. So, if you meet the lender’s criteria in this respect, then your application should go forward.
It is definitely possible, although you may face more challenges. Finding a Shared Ownership mortgage takes research as these products are not widely available.
Using a broker can help to speed up the process, ensuring you are paired with a competitive deal.
If you have a less-than-perfect credit history then it’s still possible for you to get a mortgage as a contractor.
A lot will depend on the severity of the adverse credit event and how much time has passed since it happened. The less severe and the longer ago that it happened, then the less weight it carries.
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