Our guide provides all the details you need about getting a mortgage as an independent contractor. Whether you’re only just thinking about applying for a mortgage or you have your heart set on a property, here’s what you need to know:
find me a mortgageShort answer: yes. Long answer: it depends on your circumstances. As a financial service, many lenders consider freelancers to be an additional risk when approving a mortgage. Because you’re not receiving a steady salary, some banks may consider your income to be too precarious to get the best rates on the market. But that doesn’t mean that you can’t get a mortgage as an independent contractor. With many freelancers earning more than the average office worker, it makes sense that mortgages are available for people on just about any career path.
The fundamental difference between getting a mortgage as an employed individual and getting one as a self-employed contractor is the information you’ll have to provide to the lender. While a salaried person must provide simple proof of their regular income for an affordability assessment, a self-employed person will have to offer significant evidence of earnings. This could be as much as the past two or three years of accounts. This requirement is one of the reasons it can be more challenging for new contractors to get a mortgage, regardless of how much regular income they are bringing in.
If you’re ready to apply for a mortgage as a contractor, the first thing you’ll want to do is get your books in order. The easier to understand and clearer your accounts are, the better. For many contractors, contracts can extend from a few months to several years. If your income is relatively steady, a lender can use those two or three years of income to figure out an average. If you’re operating as a limited company, this income will be your salary instead of general business profits.
Many contractors work on a day rate. Your lender will need the information on your rate so they can figure out exactly how much your typical income is. From there, they can find out which mortgages you’re eligible for. Typically, your income from your day rate is calculated by the number of days you work per week and the number of weeks you work per year. Generally, that’s four to five days and 46 to 48 weeks.
Here’s an example of how a lender would work it all out:
Joe earns £350 as a day rate.
He works 5 days a week
He works 47 weeks a year
£350 x 5 days = £1,750 per week
£1,750 x 47 weeks = £82,250 annual income
This calculation is particularly valuable for contractors with only a year or two of freelance history. It allows lenders to get a good idea of your earnings without the need for years upon years of accounts behind you.
Check AffordabilityGetting everything in order and ready to go can make a huge amount of difference in any mortgage application. Doubly so when you’re a contractor. With lenders considering your career stability a risk, providing proof, offering reassurance, and showing yourself as a good candidate can mean the difference between an acceptance or refusal. Here’s what you can do to improve your chances:
Many contractors work in stints, and the breaks in between can be lengthy – particularly if you’ve already earned a good income off the previous job. But when it comes to mortgages, steady work is what’s needed for approval. Where possible, try to prevent taking long breaks. Lenders want to know you can pay your mortgage as standard every month, and long gaps can be perceived as a problem for that reason.
If you have a partner or family member that is employed full-time, it may be a viable option to apply for a joint mortgage. While you’ll still need to prove your income, you’ll be able to have a backup of a regular salary to support your application on top.
The main concern of lenders is reducing risks when they approve mortgages. Providing a larger deposit can be an excellent way to mitigate that risk, as well as lowering your monthly mortgage payments if you do get approved. The larger the deposit, the better, so if you have access to the funds or have someone who can gift them to you, all the better.
Your credit score is a critical component in determining whether you’ll be approved for a mortgage. An excellent credit score is a perfect way to show your ability to handle credit and finances as a self-employed person. While a low credit score doesn’t necessarily mean you can’t get a mortgage, a good credit score can make a big difference for contractors.
Often, lenders have criteria for mortgages that are narrow and inaccessible for contractors. That’s where a specialist mortgage broker or advisor comes in. By seeking expert help, you can find suitable mortgages for your specific circumstances. Getting tailored advice as a self-employed individual can help you find lenders that are more likely to accept you based on your finances and career.
Contact UsBefore you begin your application, ensure all your finances, documentation and credit score are in the best possible shape is step one. At WIS Mortgages, we specialise in advising on suitable mortgage lenders that are tailored to your individual circumstances as a contractor. So why not chat with us today to get started with your mortgage on the best footing possible? Call us on 020 3011 1986 now to get started, or apply online today with our handy digital mortgage calculator. 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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