Best mortgage for contractors UK  image

Best mortgage for contractors UK

There are plenty of mortgages online aimed at contractors. Each promises to cater to the particular circumstances surrounding contractors. However, it may be difficult to find one that meets your needs. This article highlights the nature of mortgages for contractors and what you can do to secure the best mortgage for contractors UK.

Mortgages and working on a contractual basis

Working on a contract basis is flexible, potentially earns you more income than employed people, and lets you focus on your skillset. However, especially in the past, most financial institutions found the unpredictable nature of contractual work to lack the necessary long-term commitment found in permanent employment. While salaried people earn relatively less than contracted individuals, their income is steady which is reassuring to a lender.

These days, companies actively seek contractual arrangements since contractors are highly skilled and experienced. Additionally, contractors are best suited to handle special projects and meet strict deadlines. For example, an expansion project or unique marketing campaign is best assigned to a team of contractors, leaving permanent employees to handle the day-to-day duties.

The demand for contractual arrangements means fewer instances in a calendar year when a contractor is out of work. Similarly, the higher income of contractors means they have the purchasing power for products such as mortgages. Therefore, more mortgage firms are open to lending to contractors.

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Can a contractor get a mortgage?

Yes, contractors can access mortgages. However, the process is more complicated than for permanently employed individuals.

The good news for contractors is that the world is fast-changing, with permanently employed individuals facing similar challenges. It’s no longer guaranteed that an employed person’s position will remain secure in times of economic struggles. Furthermore, since contractors earn more, lenders are beginning to realise their commitment potential.

Who qualifies as a contractor?

You can apply for a mortgage as a contractor if you belong to any of these categories:

These categories affect the criteria lenders use to determine how much they can borrow.

Lending criteria for contractor's mortgages

Lenders consider several factors when deciding whether to offer you a mortgage and how much to offer. These factors include:

Work history

Contractors face the similar challenge of an uncertain work future when dealing with lenders. Therefore, lenders wish to know how long you have done such contract work. The longer you have worked in the same field and preferably with the same organisations, the more appealing your application. Your application looks better if there are little to no gaps between contracts. It is best to be contracted currently and still have plenty of time left for the contract when applying for a mortgage.

Income

Lenders look at your income in several ways:

While contractors usually earn more than employed individuals, lenders will consider either your latest earnings or point out when you made the least in your history. This cautious approach protects their investment should the worst-case scenarios play out.

Current financial commitments

Your current expenditures determine how much disposable income you can channel to mortgage payments. Your bank statements reveal plenty of information about your expenditure and savings. Some lenders analyse your lifestyle to determine your commitment to making payments. If you have plenty of other payments to make on borrowings, you are likely to lack space for one more significant deduction.

Credit status

While you may lack the stability of permanent employment, a clean credit history will improve your chances considerably. Therefore, keep your debts to a minimum and always make timely payments. A relatively high income and impeccable credit status will help you access the mortgage.

What documents are necessary for the mortgage application process?

You’ll need to produce your current contract agreement as proof you have a source of income. Besides that, you need to produce:

How do I improve my chances of landing a mortgage as a contractor?

When lenders look into your work history, they need reassurance that you will make timely mortgage payments. Therefore, you need to prove that you’ll manage those payments without fail. It’s best to present a current contract agreement and ask for the option to renew or have another lined up.

Additionally, you should aim to save up and make a larger deposit if you can to minimise your regular payments. A mortgage lender will feel more confident with the reduced subsequent payments.

Furthermore, work to minimise your expenditure. Take time to review your spending, and only allow necessary expenses with a few secondary ones that make sense. The aim here is to show you have enough disposable income to meet the mortgage payments.

Remember your credit history. Keep all debts to a minimum and make timely payments. Aim to get rid of all debts before applying for the mortgage. This move shows you have ample space for this new and significant long-term commitment.

Conclusion

When searching for the most appropriate mortgage for contractors, you’re better off using a mortgage broker. At WIS Mortgages, we are a digital mortgage advisor with offices in Kent, London, Essex, and Buckinghamshire. We cover the whole of the UK and offer specialist advice for contractors to help you demystify the terms and conditions from lenders. Expect free advice and zero fees in the process.

In addition, we have an accountancy arm (WIS Accountancy) and insurance (WIS Business Protection), wealth, and pension to cater to most of your financial needs.

You can use our mortgage calculators to determine where you stand as you plan to borrow. Note that the Financial conduct Authority does not regulate Accountants.

As a mortgage is secured against your home/property it may be repossessed if you do not keep up with the mortgage repayments.

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