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Mortgage for Contractors & Freelancers UK

By Kristian Derrick

Last Reviewed: 21st July 2023

Getting a mortgage as a contractor can seem daunting, but it’s not impossible.

Non-traditional forms of employment like contracting and freelancing have become more popular, with around 4.44 million people in the UK currently working in self-employment.

Unlike before, it’s now simpler to get approved for mortgages for contractors, provided you approach it the right way.

Here’s everything you need to know about mortgages for contractors, so you can know what to expect and how to improve your chances.

Can Contractors Get Mortgages?

Yes!

Mortgages for contractors are now more widely available and feature higher success rates as lenders update their criteria to accommodate the increasing number of people opting for non-traditional employment.

Mortgage options are available for different types of contractors, including:

  • Fixed-term contractors
  • Self-employed contractors
  • Agency workers
  • Subcontractors
  • Umbrella company contractors
  • Short-term renewable contractors
  • Zero-hour contractors
  • Professional contractors like teachers, medics or accountants

The type of contractor you are can determine how lenders assess your application.

Some can use your daily rate to determine how much you qualify for, while others will consider how long you’ve been a contractor, your average annual earnings, and the consistency of your working patterns.

How Is Income Assessed for Contractor Mortgages?

Lenders generally look for proof of income over a certain period.

Some may require you to show them a track record of at least three years’ worth of revenue, while others can accept two years of accounts, one year or as little as six months.

You must show lenders concrete evidence of how much you earn, so ensure your accounts and taxes are documented and up to date.

The net income declared in your accounts, and tax assessments can help lenders determine your affordability, and how your income is structured can affect the assessment.

Most lenders conduct assessments on a case-by-case basis and will have specific benchmarks for contractors and other non-traditional workers depending on the way you work and how you’re paid.

Some lenders can use your average income for a few years or your lowest annual figure, while others will incorporate evidence of future contracts.

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How Much Can You Borrow with Mortgages for Contractors?

Your borrowing limit can vary depending on how much you earn, the type of contractor you are, and the lender, as they use different methods to assess affordability.

Mortgage offers can be based on your average income over 2 to 3 years or your lowest income figure.

Some lenders may offer up to three times your annual income, while others can lend up to four or five times your yearly income.

Some lenders allow you to include all your commissions or bonuses and apply income multiples to determine how much you can borrow.

However, others cap the commission or bonus earnings you can declare.

Most providers generally use your contracted day rate to calculate how much you can borrow through the following formula:

  • Day rate x the number of days you work every week = weekly income
  • Weekly income x 48 weeks = the annual income
  • The annual income x 3 or 4 (depending on the lender’s income multiple) = the maximum mortgage you qualify for.

Other criteria determining how much a lender will lend to you include how long you’ve been a contractor, your monthly outgoings, your credit score and any other loans you may have.

What Deposit Is Required for Mortgages for Contractors?

The amount of deposit you’ll need as a contractor will be similar to other borrowers, and will typically be 10% for contractor mortgages.

The larger the deposit you can put down, the better the interest rates and terms of the deal.

A higher deposit will help lower your loan-to-value (LTV) ratio and give lenders confidence that you can comfortably afford the mortgage.

You’ll have limited options if you have a lower deposit or no deposit, and you may need to use government schemes like Help to Buy or incorporate support from a family member through a guarantor mortgage.

What Documents Are Needed for Mortgages for Contractors?

The documents you’ll need to secure a contractor mortgage can differ slightly from traditional mortgages and can include the following:

  • Suitable identification
  • Copy of current contract
  • At least three months’ bank statements
  • Invoices or profit and loss statements
  • Proof of day rate and experience
  • Tax calculations

Can You Get a Contractor Mortgage if Your Contract Is Ending?

Lenders require that you have at least 6 to 12 months remaining on your contract when submitting a mortgage application.

It gives the lender confidence that you have enough time remaining before looking for and agreeing to future work opportunities.

You can also speak to your lender if your contract ends sooner and present proof or information that makes you a trustworthy and dependable borrower.

Such information can include:

  • Your experience in the industry you work in
  • Your track record as a contractor
  • History or regular contract renewals
  • References from regular clients or employers
  • Any new contract you’ve already secured or agreed on

How To Improve Your Chances for Mortgages for Contractors

You can take a few steps to strengthen your application and improve your chances of qualifying for a mortgage for a contractor, including:

  • Check and improve your credit

An adverse credit report can tell lenders that you can’t stay on top of your finances and make it challenging to get approved.

Ensure you check your credit report, correct any misinformation or missing details and register on the electoral roll.

  • Save as much deposit as you can

The bigger the deposit, the better, as it can help improve the lender’s confidence and ensure you get the best deal available.

  • Improve your finances

Get your finances in order by eliminating unnecessary outgoings or spending a few months before applying.

Avoid maxing out your credit cards and stay away from unnecessary loans that can affect your borrowing capacity.

  • Offer security

Some lenders will consider assets like luxury items, property, or jewellery as collateral to approve your application.

If your parents are willing, they can support you using their savings or equity and help you get on the property ladder.

Mortgage for Contractors Final Thoughts

Getting a mortgage for contractors is all about finding the right lender for your situation.

Consulting a mortgage advisor or broker specialising in mortgages for contractors can ensure you get the best advice and increase your chances of success.

Ready to remortgage?

Whether you want remortgage to find a lower interest rate, or raise money for home improvements, we may be able to help you find a better rate.

Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.

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