Contractor mortgages
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Contractor mortgages
There are a lot of advantages that come with being a contractor; you have professional freedom, huge variety in the work you do and the potential for high earnings. If you’re lucky, you might even be a contractor without a boss to answer to, meaning you’re in complete control. But, all of these benefits are quickly forgotten about when the time comes to apply for a mortgage. Though there are a whole host of contractor mortgages out there, and securing one is by no means impossible, being self-employed can mean you have a few extra hoops to jump through.
At Everest Mortgages, we help you to secure the contractor mortgage you deserve by matching you with lenders who understand your self-employment structure.
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What is a contractor mortgage?
As a contractor, you probably don’t have a set income in the same way employees do. You might earn lots one month, and less the next. You might be juggling a dozen clients at the start of the year, and only have a handful to think about as the year comes to an end. This means it’s not as simple as showing lenders a few months’ worth of payslips, proving you have a good credit score and being approved for a fixed rate mortgage. As a contractor, you’ll likely need a contractor mortgage.
A contractor mortgage is a residential mortgage, and it works in a very similar way to first time buyer mortgages, self-employed mortgages and no deposit mortgages. However, they are designed for buyers who earn their living through short-term or long-term contracts, rather than a permanent employed role.
Why do lenders view contractor mortgages differently?
Lenders still want to know you can repay the loan, but the way that affordability is assessed is slightly different and reflects the nature of contracting. This means factoring in project fees, day rates and dividends, rather than just a full-time salary and monthly wages.
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Popular contractor mortgage options
Being a contractor doesn’t mean you have limited mortgage options, it just means you need to find lenders that understand what you’re looking for. This is something the Everest Mortgages experts can help you with. As a contractor, you can access many of the same mortgage types as employees, including:
Fixed rate mortgages
Fixed rate mortgages offer stability and predictable monthly payments over a set term. This means you always know what you’re going to pay, which can be helpful if your contracting income fluctuates.
Variable rate mortgages
Variable mortgage rates change, which means they can be cost-effective when rates are low, but you should expect payments to change over time. This is something to consider if your income changes a lot from one month to the next.
First time buyer mortgages
For contractors taking their first step onto the property ladder, many lenders offer specialist mortgages aimed at first time buyers. These often have lower deposit requirements.
Self-employed mortgages
Self-employed mortgages are designed for individuals whose income doesn’t follow a traditional payslip format, as is the case with contractors. Lenders will ask about your day rate, contract length, average earnings, credit history and deposit size, rather than looking at your monthly income.
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How to get a mortgage as a self-employed contractor
Getting a mortgage as a contractor is very similar to getting any other type of mortgage, until the time comes to assess your income. Rather than seeing a regular payslip – which employees who are paid via PAYE will have – lenders need to understand the stability of your contract work and your long-term earning potential.
To be approved for a contractor mortgage, you’ll need to show that you’re financially reliable and you have a consistent income. To assess this, lenders look at how long you’ve been contracting for, proof of income – you can prove this with SA302s, tax calculations, payslips or day rate contracts – your contract types and length, and how your business is structured. For example, are you a self-employed sole trader, a limited company director or an umbrella company contractor? They might also look at how you’re paid, whether that’s through salary, dividends or retained profit.
Lenders use this information, along with the size of your deposit, to determine if you are eligible for a contractor mortgage. When applying, the most important thing is to prove consistent earnings.
5 reasons to work with a mortgage broker who understands contractors
When you work with a broker who understands contractors, it’s a lot easier to secure the right contractor mortgage for you. Here’s why:
1. Knowledge of contractor-friendly lenders
A contractor mortgage broker knows which lenders accept self-employed applicants and the various forms of income they accept. At Everest Mortgages, we also know which lenders are flexible about the length of time you’ve been contracting for.
2. Better mortgage application
There’s a lot of paperwork that goes into getting a contractor mortgage, but a broker can help you to prepare SA302s, accountant references, proof of contracts and income summaries, showing lenders exactly what they want to see.
3. Access to more lenders and deals
There are a surprising number of contractor mortgages out there, but many are only available through brokers. Working with a mortgage broker means you don’t miss out on the best deals.
4. Faster and smoother process
By targeting the right lenders from the start, you avoid wasted time, pointless searches, repeated credit checks and delays. You can hit the ground running, knowing you’re looking at the right lenders from the very beginning.
5. Advice on structure and timing
With specialist contractor mortgage knowledge, a broker can recommend how to best show your income and whether waiting for a longer contract run would improve your outcome.
At Everest Mortgages, we know all there is to know about contractor mortgages, including what lenders look for. With us, your mortgage journey will be off to a strong, steady and straightforward start.
Frequently asked questions
Can self-employed contractors get a mortgage?
Yes, most self-employed contractors can get a mortgage, as long as you can prove you have the required income and have a big enough deposit.
What size deposit do contractors need?
This depends on the lender, the property you’re buying and the contractor mortgage you choose. Usually, first time buyers need a deposit between 5% and 10% of the property value, but other mortgage types may require more.
How long do I have to contract for before getting a mortgage?
There’s no set timeframe, but many lenders prefer you to have 12 months or more of contracting history behind you. You can get a mortgage if you’ve been contracting for less, but you’ll likely need a larger deposit.
Are contractor mortgage rates higher?
No, not necessarily. Being a contractor doesn’t mean you’ll automatically be given a higher mortgage rate. If you can prove your income and you meet lending criteria, you can access competitive rates similar to employed applicants.
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