Contractor mortgages

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contractor mortgages
We have guidance for daily rate contractors who are self-employed or working through their own limited company set up and are looking at purchasing a home.

What is a Contractor mortgage?

Being a self employed contractor can offer you flexibility and independence, but also with it comes uncertainty – especially when buying a property.

In recent times we’ve seen an increase in the number of freelancers and independent contractors in the UK. This may seem like heavy competition when you’re looking for a mortgage that suits you.

There's no need to worry as several mortgage lenders may consider granting you a loan, despite your fluctuating income. This guide provides you with detailed information on how mortgage lenders evaluate your application and suggests ways to increase your likelihood of approval.

Getting a mortgage when you're paid a 'day rate.'

Some lenders may be willing to calculate your annual income on the basis of your day rate, though many require you to have a 12-month contract for this to be an option.

In London and the UK, if you are a daily rate contractor, mortgage lenders will typically calculate your annual income by multiplying your daily rate by the number of days you work in a week and then projecting that figure over a full year. It's important to note that lenders will also consider any breaks in your employment, including holidays and time between contracts. As a result, they will usually assume that you work between 46 and 48 weeks in a year.

Day rate example:

If your day rate is £400 and you generally work four days per week, your estimated annual income would be around £76,800.

£400 x 4 days = £1,600 per week

£1,600 x 48 weeks = £76,800

This approach can be especially helpful if you recently left full-time employment and have not established a proper track record.

If you are a contractor, mortgage lenders will require proof of your ability to succeed in this line of work. This may include documentation of your past experience, relevant qualifications, signed contracts, and a professional network for reference purposes.

Your property may be repossessed if you do not keep up repayments on your mortgage.

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