What is a contractor mortgage and are they difficult to secure?
Securing a mortgage as a contractor can be a tricky business, as lenders and customers are historically ill-informed about contractor mortgages. The common perception of contractor mortgages is that they come with lots of stipulations and hurdles to overcome before being granted. While this is undoubtedly true in certain cases, in most cases all we need is your signed contract as proof of income.
For a number of contractor friendly lenders, applicants only need to supply some form of identification, bank statements and a copy of the contract in order to obtain approval, making the process fairly stress free for all involved. However, the criteria vary from lender to lender, so expert advice helps to make sure that the most suitable lender is chosen.
Can contractors get a mortgage?
Contractors often find that when they speak to a bank or building society, the lender’s advisor is asking them for 3 years limited company accounts or 2 years contracting history. It doesn’t have to be this way.
Everyone else was just assessing contractors based on self-employed lending criteria. This situation, however, has drastically changed during the last two years, as more lenders introduced contractor lending criteria and there are now dozens of lenders to choose from.
Yet, if you are thinking of going directly to a bank, you may find it hard to get your mortgage approved based on contract income. On the other hand, we offer bespoke contractor mortgage advice and will be happy to arrange the mortgage for you.
How is contractor income assessed?
An often overlooked fact is that contractors actually stand more of a chance of securing their desired mortgage than other kinds of borrowers.
This is because lenders are able to assess their income based on limited company accounts, umbrella company payslips or on a contract daily rate. This ultimately gives more mortgage options and flexibility in securing the best mortgage deal.
- hourly rate x 37.5 hours per week x 46 or 48 weeks or
- daily rate x 5 days x 46 or 48 weeks
These calculations may be personalised based on the hours or days worked per week, but they also allow for holidays, short breaks between contracts and even the break around Christmas.
Some lenders would use a slightly different income calculation. They may take 52 weeks’ income to use in their mortgage affordability calculator or they may average the daily rate over the last 12 months.
Applying our experience and knowledge, we check which income calculation method gives us the required mortgage amount, so we can recommend the best mortgage deals to you. What’s more, we have the expertise to present a case as appropriate to secure the mortgage based on just your daily rate.
Contractor buy to let mortgage
When applying for a buy to let mortgage, contractors have the same advantage of being able to use different income assessment methods.
This is normally ok for contractors who take out salary and dividends in a way to stay in the basic tax rate payer bracket.
However, sometimes the rent is not enough by itself to achieve the required mortgage amount. If the lender allows for earned income to be used to secure a higher mortgage amount, then contractors can either use their Ltd company income or the contract rate-based assessment.
Building on our experience, we offer specialist contractor mortgage advice, including buy to let mortgages for contractors. Contact our friendly team for further information and to help you build an investment portfolio.
- less than a year contracting history?
- 5-10% deposit?
- less than a month remaining on the current contract?
- a few months break between contracts within the last year?
- an offset facility?
Yes. You can get a contractor mortgage even in the above circumstances. Gives us a call and we can secure a mortgage based on your individual circumstances and requirements.
Customers tend to ask about certain aspects of borrowing, so you may find these sections useful as well. After all, things can be a bit tricky sometimes.