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Mortgages can feel inherently complicated at the best of times, let alone when you are looking for contractor mortgages. When you work as a contractor, you don’t have a regular monthly income like a PAYE employee. Neither do you have payslips or a contract that guarantees your income to a specific company? Therefore, it can make persuading a mortgage lender and getting a mortgage slightly more complicated than normal. There’s no reason to panic though – a contractor can still be eligible for a mortgage. You will just need to understand the intricacies of contractor mortgages in greater detail. So, let’s take a look at how much mortgage you can get as a contractor.
What is a contractor?
A contractor is someone who will, typically, be working for one client at a time through using an agency, or sometimes even direct for the end client on a short-term contract basis. The agency or client will expect the contractor to still work within specific office hours and will assign them projects or assignments that can last between three and twelve months. The contractor will then invoice on a rate-basis, either daily or hourly. At the end of each week, a time-sheet will be submitted to the agency or client.
When we are talking about contractor mortgages, it is worth noting that these are only available to contractors who either work through their own limited company or who use a UK payroll umbrella company to run their contracting business.
Can you get a mortgage if you are a contractor?
The simple answer is yes. However, the amount you are eligible for is very much dependent on a number of variables. This includes information such as the length of time you have been contracting for, the way your payment structure is set up (e.g. are you a limited company, director, umbrella company contractor, or self-employed), what your day rate is, what your credit rating is, and how long you have worked in your chosen industry for before you became a contractor. Each of these individual factors will influence whether you can get a mortgage if you are a contractor and which lender is most suited to your needs.
It perhaps goes without saying that inevitably, the longer you have been working as a contractor and the higher your day rate, as well as the security achieved within your contracts (such as locking in long-term contract periods), will all serve you well in achieving a contractor mortgage.
How will a lender assess my income as a contractor?
It is possible for contractors to get competitive mortgages by using an annualized contract rate. This is the same for both those new to contracting, as well as those who have been doing it for many years. There are a number of mortgage calculators available online that can serve as useful resources for understanding what you might be eligible for.
It should be noted that these will only provide guidelines on what you can borrow compared with an exact figure. The only way that you can be guaranteed to know the exact figure you can borrow is through speaking with an underwriter who will then put together your full mortgage application and assess it.
How much mortgage can I get as a contractor?
The only way of knowing the exact amount you can borrow as a contractor is by submitting a full mortgage application to be reviewed. However, there are more general ways in which you can calculate what your typical borrowing limit may be.
If you want to know how much mortgage you can get as a contractor, first start by multiplying your daily contract rate by the number of days you are contracted per week. Then times this by 48 weeks in order to understand what your annualized income is. Contractor-friendly lenders will use this figure in order to determine what they believe is affordable for you.
As an approximate guideline, you may be able to secure mortgage funds for up to five times your annualized income.
This is slightly different if you are looking to apply for a mortgage with another person who is working on a permanent contract. In this instance, you need to understand your annualized income. You should then add your income to the gross annual earnings of the person you are looking to get a mortgage with. This will give you a joint potential, which when times by five times, will give you the total sum you may be able to get as a mortgage.
Your mortgage will also be influenced by how much deposit you are able to put down. Find out more here about how to apply for a deposit with just a 10% deposit: Alternatively, you can find out more about 5% deposit schemes
What type of paperwork will you need to show?
In order to get a mortgage as a contractor, you will need to be able to provide a copy of your current contract. If there isn’t long left on it, there’s a chance you’ll be asked to provide evidence of a continuation to demonstrate the longevity of your relationship with the client or agency. This document should show what your daily or hourly rate is, as well as the length of your contract. You may also be asked to provide bank statements that align with your contracted amount, as well as proof of ID.
What key things should I consider as a contractor?
– Always keep an eye on your credit score to ensure you’ll be eligible when the time comes
– Try to build up your deposit as you’ll have more choices with a higher amount
– Don’t stretch yourself too much. You need to ensure your mortgage is affordable
– Find a mortgage specialist who is equipped to help contractors
– Ensure all your paperwork is up-to-date
– Avoid any long gaps between each of your contracts and ensure all your accounts and tax payments are up to date.
How can we help?
WIS Mortgages are an end-to-end digital mortgage broker aiming to make online mortgages simple. If you work as an IT contractor or are self-employed, we’re here to help you in finding and achieving the most suitable mortgage for your income. If you’re looking for a guide on what your mortgage potential is, you can use our own custom mortgage calculators or get in touch for free advice from a member of our skilled team.
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