The UK mortgage market is expanding it’s offering for contract workers, making it potentially easier for those in the demographic to get property finance. Here, we look at the definition of a contract worker, income assessment, how much contractors can borrow and what specialist advice is available.
What is a contractor mortgage?
A contractor mortgage is a loan against a property for a professional who operates via their own limited company, and are not employees of a larger business1. A contract worker is not in formal employment but work via an agreed contract for a specified period of time, making them self-employed specialists1. You can read more about the growth in self-employment and the impact on the mortgage market in the UK here.
Contractors can be considered for Residential or Buy to Let mortgages, with some lenders willing to consider applications from all professional contactors5. These will include contractors who work in IT consulting, accountancy, tradesmen, charity and government workers or the legal profession, for instance, barristers and solicitors.
There are also lenders with an appetite to lend to contractors subcontracting for multiple companies, despite some additional complexity.
How will a contract worker’s income be assessed for a mortgage?
One of the main differences between a regular mortgagage and a contract mortgage is the income assessment. As a contract worker is not in formal employment, it is essential for the lender to carry out appropriate affordability assessments to see if an applicant can afford the mortgage and interest repayments. For the lender to assess whether you meet their lending criteria, they will look at your accounts to understand your income and to determine the net profit you declare as a sole trader or partnership.
If you are contracted by an umbrella company, it can be harder for the lender and broker to demonstrate the income and whether it is sustainable or not. Some lenders will be happy to take a view on this, whilst others will not. Seeking professional advice may give you access to a broader range of lenders and may increase your chance of securing the mortgage you need.
How many years of accounts do I need to get a mortgage as a contractor?
For some of the newest contract mortgage products, just one year of accounts are now required for affordability testing from lenders.1 This can vary between lenders, with some now willing to assess a mortgage application for day one contractors.1 For those who are new to the contractor market, lenders may also consider the stability of your accounts to determine whether your income meets their criteria.2
Does the length of contract matter?
The lender may require a minimum amount of time remaining on a current contract, or a contract extension, for a mortgage application to be considered.4 However, these requirements may vary between lenders.
If you are a fixed or short-term contractor looking for a mortgage, seeking professional advice could be highly beneficial in helping you to secure the borrowing you require. Although obtaining this finance on the high street can be a challenge there are numerous private banks with an appetite to lend. This is where an experienced mortgage broker may be able to help.
Of course, the longer your history of contracting or if you have had contracts renewed the easier it will be to find a mortgage.
How much can you borrow as a contractor?
This will depend on income, the loan amount required, and the rate offered by the lender. Use our mortgage calculator to get an idea of how much it could be possible to borrow, according to your monthly repayment affordability.
The rates on a contract mortgage should not differ vastly from that of a regular mortgage4. However, it is always important to remember that the more substantial the deposit you can provide, the better your rate is likely to be. To be able to take advantage of favourable rates and terms, you will need to find a lender accustomed to the financial circumstances of a contract worker.4
How do I find a lender as a contractor?
Contractor mortgages make up a small part of the UK mortgage market. Therefore, it is advisable to seek specialist mortgage advice to help you source the most appropriate product for your financial position. A specialist broker will also be able to help you find the most attractive deals available.
Specialist mortgage brokers have access to a wide range of niche lenders and Private Banks, who may have a higher appetite to lend to contract workers with complex circumstances than High Street Banks. Furthermore, specialist mortgage brokers have experience dealing with intricate cases, and expertise in negotiating with the lender to secure the most suitable rate possible for their clients.
Your home or property may be repossessed if you do not keep up repayments on your mortgage