Contractor Mortgages Explained

This article will provide all the information you need on how to get a mortgage if you’re a contractor, what evidence lenders will want to see depending on the type of work you’re doing and where to look for the right advice.

Can you get a mortgage as a contractor?

Yes, it’s possible. Contractor mortgages are widely available these days, with most lenders updating their eligibility criteria in response to the increasing number of people opting for this type of employment. The type of contract you’re working under will be a key factor in determining how your application will be assessed.

There are a range of mortgage options for the following types of contractors…

• Self-employed contractors
• Fixed-term contractors
• Short-term renewable contractors
• Umbrella company contractors
• Agency Workers
• Zero hours contracts
• Sub-contractors
• Professional contractors

A lender’s definition of your contractor status will usually depend on how you pay income tax. If you pay tax via self-assessment, you’ll be classed as self-employed. Or if, for example, you work for an umbrella company that pays your tax and provides you with payslips, then you’ll be classed as employed.

Some lenders will use your daily rate to calculate the amount you can borrow, while others will look at average annual earnings over a number of years. Time spent as a contractor and the consistency of your working patterns will also be considered.

How to get a mortgage as a contractor

Your first step should be speaking to a broker specialising in contractor mortgages. If you make an enquiry with us, we will match you with an expert in this area for free.

Your handpicked contractor mortgage specialist will walk you through the following steps to full application:

• Readying the correct documents and necessary paperwork specifically required for contractors, including proof of income and any SA302 statements
• Downloading and optimising your credit reports to identify any inaccuracies and outdated information that could hinder your application
• Finding the right mortgage lenders who look more favourably on applications from contractors and securing the best rate for you

How your contract type could affect your application

You can be classed as a contractor in several ways, depending on how you charge for your services and how you’re paid for the work you do. Each contract type is viewed differently by lenders when determining your eligibility for a mortgage.

• Self-employed contractors: Ideally, a lender will want copies of your last three SA302 statements. However, you can still get a mortgage if you only have 12 months of statements, as some lenders are open to loaning to you in this scenario. Lenders will either work out your average income across years on your statements or take the lowest annual figure if there’s evidence of large fluctuations.
• Fixed-term contractors: Most mainstream lenders will want to see at least 6-12 months remaining on any fixed-term contract when you apply. You’ll be classed as an employee if your income is taxed at source.
• Short-term renewable contracts: Some lenders accept short-term contracts of three to six months if the total continuous period of work is at least twelve months. Evidence of any future contracts would also be beneficial.
• Temporary contracts: They can be classed as either self-employed or employed, depending on how income tax is paid. If you work for an umbrella company, you must provide your recent P60 tax overview, 3 months payslips, and bank statements.
• Agency Workers: Your current contract should be no less than three months, and you have evidence of continuous employment for the last twelve. Some lenders may require an employer’s reference from your current agency.
• Zero-hour contracts are acceptable. Types of contracts acceptable include NHS Bank Nurses, retained firefighters, and supply teachers. Most lenders will want to see evidence of at least 12 months’ previous track record.
• Professional contractors: Types of roles usually deemed acceptable are I.T. contractors, medical professionals, and accountants. Most lenders usually require a minimum of 12 months of continuous contract with evidence of at least 6 months remaining.
• Limited Company: Some lenders will only take your salary and any dividends into account. So, if you’re only taking a low salary and retaining profits, you would be best served finding a lender who will include these when deciding how much you can borrow.

What if you’re a subcontractor?

Mortgage lenders assess subcontractors in much the same way as contractors. If you trade this way, most mortgage providers will consider you eligible for finance if you have a 12-month track record of continuous employment and meet the rest of their criteria.

Suppose you are a subcontractor enrolled in the government’s Construction Industry Scheme (CIS). In that case, you can use the gross income on your payslips rather than your business accounts or self-assessment for the mortgage provider’s affordability assessment.

You can read more about the scheme in our guide to CIS mortgages.

Can you get a mortgage as a contractor inside IR35?

Yes, but your choice of lenders will likely be fewer as some mortgage providers have not yet firmed up their criteria for contractors inside IR35. Since the legislation was introduced, some umbrella contractors and professionals on fixed-term agreements have found that they can now not meet the affordability criteria at many lenders.

This has hit new or first-time contractors harder than established professionals, but those who trade as a limited company have not seen their affordability change dramatically.

Do professional contractors get better deals?

Some mortgage lenders favour professional contractors. They may offer higher income multiples and potentially lower rates to attract their business.

Our brokers have found exclusive deals for the following professional contractors…

• IT contractors
• Locum doctors
• Barristers
• Seafarers
• Oil and gas contractors
• Professional athletes

What happens if your contract is coming to an end?

Most lenders expect your contract to have 6-12 months remaining when you submit a mortgage application. This will, naturally, give them confidence that sufficient time is remaining on your current terms before having to seek and agree on future work opportunities.

If your contract is expiring sooner – say, within 3-4 months – speak with your mortgage broker about how to present additional information to a lender, such as details about:

• Your track record as a contractor up to this point
• Experience in your line of work
• History of regular contract renewals
• Any new contracts already agreed
• References from regular clients/employers

How much could you borrow

This will depend on your contractor type, how much income you have, and the calculations your lender uses. Some base mortgage offers on the borrower’s average income over 2-3 years, while others will use the lowest income figure from that period. Use our calculator below to work out your maximum borrowing.

For contractors with pay-as-you-earn income, most lenders take their basic salary plus any bonuses and commission from that timeframe and apply an income multiple to work out the maximum loan amount. Most lenders will use 4.5 times your salary, but some go higher.

Remember that some mortgage providers will cap the amount of bonus and commission earnings you can declare, while others will accept 100% of it.

The maximum borrowing for self-employed contractors is typically based on the applicant’s day rate. The lender will take this figure, multiply it by the number of days worked each week, and then multiply it by 48. To work out the maximum mortgage you qualify for, they will multiply the total by 4.5, or whatever income multiple they use.

Which lenders will consider your application?

Your contract work type will determine your choice of approachable mortgage lenders. Some mortgage providers prefer certain types of contractors over others. For example, Metro Bank won’t include agency work in their affordability calculations, while Bath Building Society and Accord won’t lend to people on short-term renewable contracts.

Here are a few examples of the restrictions you might encounter from specific lenders…

• TSB will only lend to fixed-term contractors with at least two years’ history working in the same field or have been contracting for the same employer for a minimum of 12 months, with at least six months left to run on that agreement.
• Natwest will only lend to subcontractors who have been working in that capacity for at least 12 months and will ask to see evidence that further work has been offered if the applicant’s income is £75,000 per year or lower.
• Halifax insists that zero-hour contract workers must have at least 12 months of experience with the same employer or others in the same field to be considered for a mortgage.

The above demonstrates a few examples of what mortgage lenders will and won’t offer to contractors. This corner of the market is vast and can be difficult to research alone, so it is recommended that you seek advice from a broker who specialises in contractor mortgages.

What interest rate to expect

Look at our rates table below to understand the mortgage deals available for self-employed contractors. Please note that these rates are subject to change.

The above rates are purely for example purposes and are subject to change at the provider’s discretion. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

Mortgage interest rates can be slightly higher for contract workers than for PAYE employees, but this isn’t always the case. If no risk factors are present, introductory rates for contractors can range between 1.64% and around 2%.

They can occasionally be higher because some types of contract work are considered higher risk than full-time employment, so lenders might up their rates to safeguard themselves.

That said, it’s entirely possible to secure a mortgage as a contractor with a low interest rate, and there are ways to lower any risk associated with your trading style, such as…

• Putting down an extra deposit
• Paying off any debts you’re able to settle
• Waiting until you have at least two years’ trading under your belt
• Applying for your mortgage through a specialist broker

What about if you’re new to contracting?

If you’ve only recently become a contractor, it’s still possible to get a mortgage—particularly if you already have a strong track record in a particular field spanning several years.

It’s important to follow the steps outlined in the sections above:

• Reach out to a mortgage broker with experience helping contractors secure mortgage lending
• Save as much as you can for a deposit
• Check and optimise all of your credit records
• Gather supporting evidence of previous employment to support your track record and any new contracts of employment you have secured since your employment status changed

Remortgaging

If you were a contractor when you originally took out your mortgage and your employment capacity is unchanged, your remortgage application will be more straightforward than your circumstances have changed. Your mortgage lender is still likely to reassess your income and employment situation due to the often unpredictable nature of contract work.

However, various circumstances make it more difficult for self-employed people to remortgage or can cause your rate to increase.

These include if:

• Your most recent year’s income is lower than the income you declared for your original mortgage
• You have made a loss in one of the years since you took out your mortgage
• You were previously in full-time employment but are now newly self-employed

Things can also be a little more complicated for homeowners who have turned to contracting since they took out their mortgage. The range of rates and deals you qualify for might differ from the products on offer when you were a PAYE employee.

It’s possible that you no longer fit the criteria at your current lender, and applying with them would only lead to disappointment. With this in mind, it’s recommended that you search the entire market before settling on a lender, especially if you only started contracting recently, as some lenders are better equipped than others to offer remortgages for contractors.