Mortgages For Contractors

Mortgages For Contractors

August 2022 

Mortgages For Contractors in 2022

There are a number of benefits to taking out a mortgage as a contractor. For example, it can help you to buy your own home, invest in property or even start your own business.

Mortgages for contractors can be a great way to finance your personal or business goals. 

However, it is important to compare products and rates from multiple lenders before making a decision. 

Remember that this article does not officially constitute financial advice, so speaking to a mortgage advisor can also help you to choose the right product for your needs.

This article will tell you everything you need to know about getting a mortgage as a contractor.

Can you get a mortgage as a contractor?

Getting a contractor mortgage can be challenging. This is because lenders frequently consider contractors to be higher-risk borrowers, given they generally draw a low salary even if their company is profitable.

However, there are several different mortgage solutions accessible just for contractors, and specialist lenders, along with some high street lenders, will offer loans to contractors.

Topics that you will find covered on this page

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What are the benefits of taking out a contractor mortgage?

Taking out a contractor mortgage can be a great idea. For example, it can help you to:

Buy your own home

Whether you’re buying your first house or higher up the property ladder, loans can assist you in purchasing a home. 

Invest in property

You can also use a loan to invest in property or commercial real estate. Consider buy to let mortgages if this is your intention.

Start your own business

A contractor mortgage can help you establish your own company if you are a contractor wanting to get started with your own business.

What are the risks of taking out a mortgage as a contractor?

There are a number of risks associated with taking out a contractor mortgage. For example, if you do not keep up with repayments, you could lose your home.

Furthermore, if interest rates rise, you may find yourself unable to make your monthly payments. It’s crucial to think about all of the possibilities before taking out a contractor mortgage.

What are the lending criteria for contractors?

Each mortgage lender is likely to have its own set of lending criteria for contractor mortgages. However, in order to be qualified for a contractor mortgage, you will need to fulfil a number of common criteria. These include:

 

  • A minimum net income of £25,000
  • Evidence of consistent contracting work over a period of time
  • A good credit score
  • A deposit of at least 10%

What are the different types of mortgages available for contractors?

There are a number of different types of loans available for contractors from most high street banks. These include:

Fixed-rate mortgages

With a fixed-rate loan, the interest rate is set for a specified length of time. This may provide you peace of mind knowing that your payments will remain the same even if rates of interest rise.

Variable-rate mortgages

If you take out a variable rate loan, you agree that the interest rate can go up or down. This means that your repayments can also increase or decrease.

Tracker mortgages

A tracker loan tracks the Bank of England base rate and changes in line with it. This might be a good choice if you think rates of interest will fall as you will benefit from lower repayments.

Offset mortgages

An offset loan allows you to borrow against your savings and reduce the amount of interest you pay on your house. This may help you save money and get out from under debt faster.

Contractor mortgages

What documents will I need to apply for a mortgage?

When you apply for a mortgage, you will need to provide a number of documents. These include:

  • An up to date copy of your passport or driving licence
  • Proof of address (such as driving licence or utility bills)
  • Proof of your annual income
  • Bank statements 
  • Your most recent payslip
  • A copy of your contract

The process of applying for a contractor mortgage is similar to the process for any other type of mortgage. However, there are a few additional steps that you will need to complete. These include:

"Mortgages for contractors can be a great way to finance your personal or business goals."

Evidence of your annual income

As a contractor, you will need to provide evidence of your average income in order to establish to the lender your ability to afford the repayments. 

This can include providing your latest accounts or a copy of your contract, depending on whether you are self-employed (pay your own tax and national insurance), a limited company or an umbrella company contractor.

A credit check

All mortgage applicants are required to pass a credit check. This is to ensure that you do not have adverse credit and, therefore, will be able to afford the repayments on your mortgage.

mortgages for contractors

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How will my income be assessed for a mortgage?

As a contractor, your income will be assessed differently from someone who is in full-time employment. This is because you are likely to be a ‘day rate’, and so your income can vary from month to month. 

Mortgage lenders will generally take an average of your income over the last 12 months in order to gauge how much you can afford to borrow. 

When you’re having your income assessed, bring as much evidence as possible of your earnings: if you’re a limited company, bring your business accounts and evidence of your operating costs.

How much could I borrow as a contractor?

As with other conventional loans, the amount contractors borrow will depend on a number of factors and your personal details. These include:

  • The applicant’s income
  • Credit history
  • The value of the property
  • The type of mortgage 

There is no one’ maximum mortgage amount’ for contractors.

Will I need a bigger mortgage deposit than usual as a contractor?

There is no one simple answer to this question. Many mortgage lenders will demand a larger deposit from contractors, while more contractor-friendly lenders may not. It will be decided in your specific case.

You might also consider taking out a guarantor mortgage to bolster your reliability. 

What are the interest rates like for contractors?

This question has no definitive answer, as rates of interest are likely to vary depending on which lenders you consult for a mortgage quote. 

However, in some cases, as a contractor, you may be able to get a more competitive mortgage deal than someone who is conventionally employed if you can prove that you are a low-risk borrower.

contractor mortgage

Which lenders offer mortgages for contractors?

There are a number of mortgage lenders who will offer a mortgage for contractors. These include:

  • Halifax
  • Barclays
  • Lloyds
  • Santander
  • HSBC
  • Nationwide
  • RBS
  • Natwest

If you are a contractor looking for a mortgage, it is essential to compare the deals on offer from many lenders. This will help you to find the best deal for your personal circumstances.

How can I strengthen my mortgage application as a contractor?

There are a number of different things that you could do to strengthen your mortgage application as a contractor. These include:

Providing evidence of your income

You will need to show proof of your income as a contractor in order to demonstrate that you can afford the repayments to the lender. This might be as simple as providing your most recent bank statements or a copy of your current contract.

If you are unable to provide trading accounts, your application will be assessed based on your contract rate, with less emphasis placed on how you actually get paid.

A good credit history

Perhaps the easiest way to strengthen your mortgage application is to have a good credit score. This demonstrates to lenders that you are a responsible borrower who has a track record of making repayments on time.

A large deposit

If you have a large deposit, this will show lenders that you are serious about buying the property and that you have the financial means to do so.

A good employment history

If you have a good employment history, this will demonstrate to lenders that you are a steady and dependable borrower. This is especially crucial for contractors since your earnings might vary from month to month. 

mortgage for contractors

If you have evidence of fulfilling fixed-term contracts or renewing previous contracts, this might aid your application. 

Making overpayments

If you make overpayments on your mortgage, this will reduce the amount of interest you pay over the life of the mortgage loan. This will also confirm to lenders that you are serious about repaying your mortgage.

What if I’m a subcontractor?

Self-employed subcontractors are generally considered self-employed for the purpose of obtaining a mortgage. This means that you must provide proof of your earnings in order to show the lender that you can afford the payments.

What is the difference between applying as a first-time contractor or long term contractor?

The main difference between applying as a first-time contractor or long term contractor is the income requirement. Most lenders will require a minimum income of £25,000 for first-time contractor applicants and £30,000 for long term contractors.

Can I get a mortgage if I contract under a limited company?

If you contract under a limited company, you may only be able to get a mortgage through a specialist lender. This is because most mainstream lenders will not lend to limited company contractors.

However, recent changes in legislation have meant that umbrella contractors and professionals on a fixed-term contract have discovered that they are now unable to meet the affordability criteria at many lenders. But those who trade as a limited company have not seen their mortgage affordability change dramatically.

Try contacting a specialist contractor mortgage broker. Specialist brokers will be more likely to give mortgage approval to someone in these circumstances.

Can I get a mortgage if I work through an agency?

If you work through an agency, you may be able to get a loan. However, some mortgage providers will require you to have a contract with the end client in order to be eligible.

Again, contacting a specialist broker might be the best solution.

getting a mortgage as a contractor

Do professional contractors get better mortgage deals?

As a professional contractor, you may be able to get a better deal than someone who is employed. This is because lenders often view contractors as lower-risk borrowers.

You should consider whether a specialist mortgage broker can help with your application.

Can I get a joint mortgage as a contractor?

Yes, you can apply for a joint loan as a contractor. This is where two or more people take out a loan together. In fact, it can often be easier to get approved for a joint mortgage than it is for an individual loan.

Can I remortgage my property as a contractor?

Yes, you can remortgage your property as a contractor. This is where you switch your loan to another lender in order to get a better deal. You will be required to supply evidence of your income in order to prove to the lender that you can afford the repayments.

There are a number of benefits of remortgaging as a contractor. These include:

Accessing equity

If you have built up equity in your property, you may be able to access this through remortgaging. This can give you the financial flexibility to make home improvements or consolidate debts.

Saving money

Remortgaging can be a good way to try to save money on your mortgage repayments. This is because you may be able to get a better interest rate from another lender.

Releasing equity

If you are already a homeowner, you might be able to release equity from your property through remortgaging. This can give you the financial flexibility to make home improvements or consolidate debts.

Accessing additional funds

If you need to access additional funds, you may be able to do this through remortgaging. This can be useful if you need to make home improvements or pay for unexpected expenses.

mortgage as a contractor

What tax implications are there when taking out a mortgage as a contractor?

Before taking out a loan as a contractor, you should think about the tax consequences. You may be required to pay stamp duty on the sale of your home, for example. Furthermore, the interest you pay on your loan is likely to be counted towards income tax.

Before obtaining a loan as a contractor, it’s crucial to consult with an accountant or tax professional.

What costs should I expect to incur when I apply?

When you apply for a mortgage, there are a number of fees and charges that you may be required to pay. These can include:

  • Mortgage application fees
  • Valuation fees
  • Legal fees
  • Survey fees
  • Broker fees

Before you apply for a mortgage, it’s essential to shop around and compare the rates and fees of several lenders. This will assist you in obtaining the best deal possible based on your specific requirements.

What are the key takeaways about contractor mortgages? 

If you are thinking of getting a mortgage as a contractor, there are a few things to remember:

  • Make sure that you compare mortgage products and rates from a number of different lenders.
  • Consider how your status as self-employed, working under a limited company or as an umbrella company contractor will impact your chance of getting a mortgage.
  • Speak to an advisor who specialises in arranging mortgages for contractors to find out which product is best for your individual circumstances, or use an online contractor mortgage calculator.
  • Remember that as a contractor, you may be required to provide a larger deposit than someone who is employed full-time.
  • Make sure you are aware of the additional costs associated with taking out a mortgage, such as arrangement fees and valuation fees, when you’re considering the financial tools at your disposal.

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Learn More About Mortgages In The UK

How do mortgages work in the UK?

Buying a home or land is expensive. A mortgage is a financial product that helps people purchase their own home or land.This is especially true for a first time buyer, as it might be the only route onto the property ladder.

The minimum credit score for a mortgage

You can still be approved for a mortgage to buy a property if you have a poor credit score. However, someone with a poor credit score will probably have a higher interest rate than someone whose credit score is good. Buyers with a low credit score may also need to pay a bigger deposit.

fixed term Contract Mortgages

A fixed term contract is a way of describing certain types of employment. If your current employment contract is due to end after a certain period of time, or after a specific piece of work is complete, you are likely on a fixed term contract. 

how long does a mortgage application take?

After sending off the final application waiting for the decision can be frustrating. Many prospective homeowners ask ‘how long does it take?’ but the truth is the mortgage approval process is always different for each customer.

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The entire conveyancing process will normally take anywhere between 8-12 weeks, however you should be prepared for this to take much longer depending on your circumstances and wider factors. This articles explores what the timescale involves.

Mortgages if You are bankrupt

There is no hard and fast rule when it comes to what lenders will accept your mortgage application if you want to get a mortgage after bankruptcy. They will lend to discharged bankrupts and consider each case individually. 

what stops you getting a mortgage?

Everyone wants to get the best deal when it comes to buying a home and getting a mortgage when they buy a home. However, being too ambitious can lead to your application being rejected. 

how much do mortgage advisors charge?

Fees for mortgage brokers can be off-putting. A mortgage is an expensive financial product, and often buyers want to save as much money as possible. This might limit their options when it comes to using a mortgage broker.  However, not everyone advisor charges a fee.

IVA Mortgage

When you have an IVA, mortgage acceptance is still possible. However, involuntary agreement mortgage lenders can be hard to find. Typically, a high street company will be more less keen to give you a mortgage. 

Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – [email protected]

Frequently Asked Questions

Can you get a mortgage as a contractor?

Getting a contractor mortgage can be challenging. This is because lenders frequently consider contractors to be higher-risk borrowers, given they generally draw a low salary even if their company is profitable.

What are the risks of taking out a mortgage as a contractor?

There are a number of risks associated with taking out a contractor mortgage. For example, if you do not keep up with repayments, you could lose your home.

Will I need a bigger mortgage deposit than usual as a contractor?

There is no one simple answer to this question. Many mortgage lenders will demand a larger deposit from contractors, while more contractor-friendly lenders may not. It will be decided in your specific case.

What if I’m a subcontractor?

Self-employed subcontractors are generally considered self-employed for the purpose of obtaining a mortgage. This means that you must provide proof of your earnings in order to show the lender that you can afford the payments.

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