Contractor Mortgages – How To Get One?
Being a contractor can offer you flexibility and independence, but also uncertainty – especially when buying a home. But as the number of freelancers and independent contractors in the UK climbs, don’t despair – many mortgage lenders could be willing to lend to you, even if your income jumps around.
How much can contractors borrow on a mortgage?
When you apply for a mortgage, the mortgage provider will first work out how much to lend you – known as an affordability assessment. It will look at how much you generally earn, what your expenses are and how secure your income is.
As a contractor, you will usually need to show evidence of your earnings history for at least the past six months. Due to this, applying for a mortgage early in your contractor career can be more difficult, though you may still have options.
How much can you borrow with a Contractor Mortgage?
Generally speaking as a contractor you will normally set up to work in one of 3 ways:
- Umbrella Contractor / Pay Roll Solution
- Limited Company Contractor
- Offshore Contractor
Although the working mechanisms may change, essentially all are based on the premise of flexible working on short term day rate or hourly rate contracts – and there are lenders which will consider all 3 mechanisms.
Some of our Contractor Mortgage Friendly Lenders include:
If you use a specialist broker and your application is submitted under contractor criteria then lenders may be willing to calculate your annual income on the basis of your day rate or hourly rate in your contract.
In this case, lenders will take your daily rate and multiply it by the number of days you generally work per week, then multiply that out to the full year.
Be aware that lenders will also want to factor in any holidays and gaps between contracts, so most will assume you only work 46 and 48 weeks per year.
Day rate example:
If your day rate is £400 and you generally work four days per week, your estimated annual income would be around £76,800. £400 x 4 days = £1,600 per week £1,600 x 48 weeks = £76,800
This approach allows you to use all of your earnings including expenses to secure mortgage funding – in many circumstances this can mean you can borrow up to 3 times more using these lenders contractor criteria
How to strengthen your application for a Contractor Mortgage
1.Offering a larger deposit – and so borrowing a smaller amount – is one way to improve your chances of success. The less risk a bank takes in lending to you, the more favourably they will view your application.
2. Lenders will also look for signs of long-term security. If you can produce an ongoing agreement with an employer, or evidence of past agreements that are likely to be renewed, this may make your application more appealing to lenders.
3. While taking breaks between stints may be one of the perks of contracting, minimise time off in the lead-up to buying a home – lenders may be wary if they see you out of work for more than eight weeks in a 12 month period.
4. In addition, consider how good your credit score currently is and whether you need to work on improving it before submitting a mortgage application. This may be even more significant for contractors, as lenders will look for evidence of good financial management when your income is not guaranteed.
5. You’ll also need to show evidence of your expenses and operating costs – the more information you provide, the better the lender can understand your financial situation and feel confident lending to you.
Making an application for a Contractor Mortgage
A number of specialist lenders offer mortgage deals tailored to contractors, including some that cater to specific professions. If you’re a contractor or freelancer, it can be valuable to speak to a mortgage broker. They can help you find a lender that accepts mortgages from people in your situation and help you navigate the application process.
An expert contractor broker such as Mint FS, understand how contractors work and how to present this the right way to lenders to maximise your borrowing.
When looking to submit an application on contractor criteria a broker should only initially require 3 things:
- A copy of your current contract and confirmation it is renewing if it has less than 3 months to run.
- A copy of your CV showing your experience and contracting history.
- A copy of the last 3 months personal bank statements and if working through a limited company solution, the corresponding business account statements also.
If your broker requests payslips or accounts then you should question how they are presenting your application.
Want to know more?
Mint FS specialise in Contractor Mortgage Applications and have close working relationships with a number of contractor friendly lenders. Call us on 0330 1355914 for an initial consultation or complete our contact form and we will call you back.