Contractor Mortgages

Matthew Pennell, Managing Director of Choice Finance Mortgages and Financial Solutions discusses what you need to know about mortgages for Contractors.

What is a Contractor mortgage and how does it differ from a Standard Residential Mortgage?

The actual mortgage itself is the same as the other mortgage deals that lenders offer, it’s just how they assess your income that’s different. Lenders will assess your income differently as a Contractor than they would for more traditionally employed mortgage applicants. 

Which banks offer mortgages to Contractors?

There are quite a number of high street banks that specialise in this area, and that’s where we come in as a whole market brokerage. We can identify those lenders for you and put you forward to them. 

How much can Contractors borrow on a mortgage? 

Lenders will work on your day-rate if you’re a Contract worker, which they will multiply by five, for a standard week and then by forty-six to forty-eight weeks to find your annual salary. They will then use that figure as your confirmed income value for affordability.

How do Contractors get a mortgage? 

It depends on a number of factors, as simply being a Contractor doesn’t necessarily guarantee that you meet the Mortgage Lender’s other terms and conditions and pass their credit scoring. You’ll need to be vetted on how you conduct your personal finances. Most lenders would also want to see a copy of the contract that you currently have in place.

How is a Contractor’s income assessed for a mortgage?

Most lenders will treat contractors as employed, so they will assess your income based on a multiple of your day-rate. This would be slightly different, however, if you work under an umbrella company.

How do you strengthen your mortgage application as a Contractor?

A track record is probably one of the most important things lenders will be looking for if you’re a Contractor. Usually they will prefer that you have at least a twelve month track record in a similar role as a Contractor. They would also usually like to see a period of six months or more left on the contract.

How is mortgage affordability assessed for a Contractor and for a Limited Company? 

Contractors are assessed on their day-rate, but if you contract as a limited company, then lenders would look at salary, dividends and even potentially profits of the business. So there are a number of potential ways that you could be assessed for affordability. 

Can a Contractor buy with another person? 

So long as the other person meets the lender’s eligibility criteria, such as credit score, income, it won’t matter whether they are employed, another Contractor, or Self-Employed; they could be added to the mortgage as a secondary applicant, meaning their income would also be considered.

What documents does a Contractor need to apply for a mortgage?

The standard documentation required is proof of ID and address. They may want to see personal bank statements, potentially business bank statements, but the main difference would be a copy of your contract. This would need to confirm when the contract started and how long was left on it, your rate of pay and any of the terms and conditions.

How can a Mortgage Broker like Choice Mortgages help a Contractor?

If you want to find a mortgage as a Contractor, it is a specialised area, so you should seek advice from a whole market broker, like ourselves, who has access to a significant number of lenders that deal in this area. It’s sometimes possible to maximise your borrowing capacity if you are recommended to the right lender for your circumstances, which we can do for you.

If you have any questions, visit our contact page, where all of our details can be found and we’ll be happy to have a chat with you and give you some guidance on your needs.