Mortgages for contractors

Different mortgage lenders have their own different definitions for what a contractor actually is. And that can mean lending criteria can vary between lenders too!

A contractor is typically identified as  someone who:

• Is a self-employed individual who works for one main company

• Is working on a fixed-term contract 

As with all applicants, lenders will look at your age, credit score and income when making a lending decision. In addition, lenders are likely to also consider the following when lending to contractors:

• The type of contractor that you are

• How long you have been contracting for

• Your experience and time served in your industry

• Whether or not previous contracts have been renewed

• The length of time remaining on your current contract

It’s all about responsible lending and ensuring you can afford your monthly mortgage repayments.

Companies commonly use contractors if they need someone with specific skills or to fill a particular role for a certain period of time. They’re not formal employees of the company they’re working for. But they sign a contract with the company that specifies the work they’ll be carrying out for a period of time. This means contractors aren’t considered to be employees, so they won’t receive employee benefits. But they can charge the business far higher fees to make up for it. Cha-ching!

Whether you’re a contractor, a freelancer or an employee looking to get on the property ladder we can help. Make an enquiry to speak to one of our Mortgage Experts to discuss your unique situation.

They include:

• Self-employed contractors (who can typically get approved for a mortgage from day one of a contract so long as it is six month’s long or more)

• Short or fixed-term employed contractors (who will usually need to demonstrate previous contracts)

• Umbrella company contractors (who will usually need at least 12 months’ accounts history)

• Zero-hours contractors (who will typically need at least six months’ work history)

• Agency contractors (who will usually need at least 12 months’ accounts history)

It varies depending on which lender you go with. Some lenders are happy to give mortgages to contractors who’ve recently started contracting - as long as  you can show that you’re getting a contract renewed, or have a longer-term contract in place.

Working out how much you can borrow as a contractor can feel daunting. Your income might vary from month to month. But this doesn’t always matter. Often, the amount you can borrow won’t differ too much to what a full-time employed applicant can borrow. 

Lenders will normally carry out an affordability check to work out how much they can lend you. As a contractor, this is at least three times what your yearly earnings are. But sometimes mortgage lenders will let you borrow up to four and half times your earnings. 

To get the best possible outcome you’ll need to show lenders evidence of your earnings for at least the last six months. However, they might ask for two or three years’ worth. This can be difficult if you’ve just started working as a contractor, but you still have options. 

Specialist mortgage brokers can help you to find a contractor-friendly lender to get approved for a mortgage, based on the terms in your current contract or day-rate. 

Mortgage lenders will also look at other affordability criteria such as how much deposit you have, any existing financial commitments (including debt repayments and fixed outgoings) and your credit history. They look at this criteria with employed and freelance applicants too.

To find out your options and get advice on how much you’ll be able to borrow, start an enquiry to speak to one of our Mortgage Experts.

Paying yourself as a contractor through an umbrella company can add further complications to your mortgage application. That’s because many mainstream lenders don’t understand how umbrella companies are used to manage a contractor’s income.

When you work under an umbrella company, you’re essentially employed by them and they act as a go-between yourself and your client. The umbrella company is paid by the client and the company then pays you. 

Using an umbrella company can make things difficult - especially when you’re paid at the statutory rate and your earnings are then topped up with bonuses or commission. In this case, it’s important to work with a specialist advisor who understands the complexities of contracting, your specific situation and contractor type so they can identify the lender who is right for you. Make an enquiry to speak to a specialist contracting mortgage advisor.

Believe it or not, you can get a mortgage on a zero-hours contract! Many lenders will offer a mortgage to contractors who are on a zero-hours contract as long as they can prove their income over the last 12 months. A lender might also want to see evidence that the contract is likely to continue and that the income is expected to be sustained.

The big banks and mainstream mortgage lenders will probably turn you down, so you’ll need to apply to a specialist lender. Most of these specialist lenders aren’t available directly to you as a borrower, so you’ll need to work with a mortgage broker to find one. Make an enquiry to speak to a specialist zero-hours mortgage broker who can help you.

Yes, you can get a mortgage as a professional contractor! Professional contractors are often engaged in long-term contracts at a senior level. Lenders might be willing to offer a mortgage based on your day rate and contract history, without needing evidence of an annual salary. However, because the criteria between different lenders can differ, your specialist mortgage broker will be able to advise you on what lender is right for you.

Read more in our Guide: Can I Get a Mortgage as a Contractor?