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Contractor Mortgages – your guide
What is a Contractor mortgage?
A Contractor mortgage won’t be a specific product that is aimed solely at Contractors, it’s simply any mortgage product whereby the lender will accept applicants who have Contractor income.
Although not all lenders will offer their range of mortgages to Contractors, due to a rise of freelance workers in recent years, the UK mortgage marketplace is having to adapt to accommodate mortgage applications from those with various types of Self-Employed income, including Contractors.
What type of mortgages are there for contractors?
The good news is, that regardless of your industry or the type of contract work you are involved in, there will usually be a mortgage to suit you. If you’re working as a Contractor in one of the following capacities, you should be able to secure a mortgage:
- An employed Contractor on a Fixed-term contract
- A Self-Employed Contractor
- Umbrella Company Contractors
- Agency Workers
- Zero hour contract workers
There will be other criteria to meet within each of these employment types, usually surrounding the minimum length of time you must have spent in the role, but these will vary from one lender to the next.
As a contractor, how much can I borrow for a mortgage?
This will vary significantly, depending on both the type of income you have and individual lender criteria. Although your affordability will be assessed differently in each case, a typical borrower can expect to borrow between three and five times their income.Talk to one of our advisers to find out how much you could borrow.
How much deposit do I need for a contractor mortgage?
This will depend on your personal circumstances, however, those with a strong credit score should be able to achieve a Loan to Value of between 90-95% for a Standard Residential Mortgage, so between 5-10% deposit will be typical.
If you have a poor credit score or a less stable form of income, you may need to offer a larger deposit to mitigate some of the risk. You may also be offered less competitive interest rates in these circumstances.
How is a contractor’s income assessed for a mortgage?
There are a few different Contractor employment types, so how you’re assessed will depend on how you are paid. Much like any other applicant, you will be assessed in terms of affordability and your credit score.
If you are Self-Employed the lender will usually look at your tax calculations and overviews for the past two to three years, however, as little as one year of accounts is accepted by some lenders. Those working under Umbrella Companies will usually be assessed based on their payslip figures over three to six months and treated as PAYE employees.
If you contract under your own Limited Company, then the majority of lenders will only look at your personal salary and dividends, however, it is possible to find those who will consider your full business accounts, which can increase your borrowing.
Can I get a mortgage if I’m paid a day rate?
As a day rate Contractor, there are lenders who will be willing to treat your income as a salary, similarly to an employed person. They multiply your day rate by the number of weeks you work per year to establish an annualised contract rate, which will act as a salary. You can then borrow a multiple of that salary.
What can I add to my mortgage application to make it more likely to be approved?
Mortgage Lenders will need to be convinced that you can keep up the repayments on your mortgage before they make a mortgage offer. To increase the chance of your application being approved you can:
- Offer more than the minimum deposit
- Provide evidence of long term employment contracts
- Improve your credit score
- Minimise gaps in employment prior to your application
- Provide the lender with a greater overall financial picture, offering perhaps bank statements and similar supporting documents
How can Mortgage Marketplace help me?
If you’re looking for a mortgage as a Contractor, then using a Mortgage Broker like Mortgage Marketplace can offer a wealth of benefits. From searching the mortgage market on your behalf, to finding a lender who meets your specific requirements, to ensuring you obtain the best mortgage rates for your circumstances, we can help.
We’ll assess your individual circumstances and help you to strengthen your application prior to submission, and can deal with the administration and progress of your application along the way, saving you time, stress and money.
Frequently Asked Questions
Call us today on 0800 170 7474 to discuss your borrowing potential and eligiability.
Typically, the mortgage process will take 2-6 weeks to reach approval.
A mortgage offer is usually valid for 6 months.
Please be aware, the process is currently taking longer due to Covid-19. Please see question ‘How has Covid-19 affected the mortgage market?’.
Whilst you are not required to take out a life cover, our job is to ensure your mortgage is affordable, no matter what. It may not be nice to talk about, but if something were to happen to you, you want to know your family and investment are safe.
We will advise on all the options available and provide a no obligation quote from our partner providers.