As a contractor, securing a mortgage can feel more complex than for traditional employees due to variable income or limited contract history. However, many lenders understand contractor earnings and offer tailored mortgage options. By preparing thoroughly and following the right steps, you can successfully secure the funding you need.
This guide walks you through the steps to secure a mortgage as a contractor, from gathering documents to working with the right lenders.
Steps to Secure a Mortgage as a Contractor
Step 1 – Understand Lender Requirements
Lenders assess contractor income differently from salaried applicants. They typically look at:
- Day Rate Contractors: Income calculated as day rate x 5 days/week x 46 or 48 weeks.
- Fixed-Term Contractors: Annualised income based on your current and previous contracts.
- Umbrella Company Contractors: Payslips showing gross and net income after tax deductions.
Tip: Be clear about your contract type (e.g., day rate, fixed term, or umbrella) to align with the right lender.
Step 2 – Gather Key Documentation
Contractors need to provide specific documents to prove income stability and affordability. These include:
- Your Current Contract: To show length, rate, and terms of work.
- Previous Contracts: Demonstrates consistent work history (usually 12–24 months).
- Three Months of Bank Statements: Verifies income deposits.
- Payslips (if using an umbrella company): Shows regular deductions and earnings.
Tip: If you’ve had gaps between contracts, explain these clearly to reassure lenders.
Step 3 – Work with a Specialist Broker
Contractor-friendly brokers have relationships with lenders who understand your income structure. They can:
- Identify the best lenders for your situation.
- Present your income in the most favourable way.
- Save your time by targeting appropriate lenders.
Why It Helps: A broker knows which lenders accept day rates or flexible earnings, increasing your chances of approval.
Step 4 – Check Your Credit Score
Your credit score is a critical factor in your mortgage application. Use tools like Check My File to review your report and address any issues before applying.
Quick Fixes:
- Ensure all bills are paid on time.
- Keep your credit utilisation below 30%.
- Avoid applying for new credit during the mortgage process.
Step 5 – Save for a Deposit
Contractors can often secure a mortgage with a 5–10% deposit. A larger deposit may help if your income fluctuates significantly or your credit score needs improvement.
Tip: Focus on saving at least 10% for better affordability assessments and access to competitive rates.
Step 6 – Calculate Your Affordability
Most lenders use an income multiple to determine how much you can borrow. For contractors, this is typically based on:
- Your average income over the past 12–24 months.
- Your current contract rate annualised (e.g., £400/day x 46 weeks = £92,000/year).
Tip: Use an affordability calculator to get an estimate before applying.
Step 7 – Choose the Right Mortgage Product
Contractors have access to a variety of mortgage options, including:
- Fixed-Rate Mortgages: Provides stability with predictable payments.
- Tracker Mortgages: Offers flexibility if you expect interest rates to remain stable.
Tip: Discuss your financial goals with your broker to find the right product for your needs.
Common Challenges Contractors Face and How to Overcome Them
Challenge 1: Short Contract History
Lenders may hesitate if you’ve recently started contracting.
Solution: Highlight prior employment in a similar field and secure a letter confirming contract renewals.
Challenge 2: Income Gaps Between Contracts
Periods without income can raise red flags for lenders.
Solution: Provide clear explanations for gaps and focus on showing consistent earnings over time.
Challenge 3: Variable Income
Contractor income often fluctuates from month to month.
Solution: Use lenders whose average income over the past 12 months or more to account for variability.
Common Challenges Contractors Face and How to Overcome Them
Challenge 1: Short Contract History
Lenders may hesitate if you’ve recently started contracting.
Solution: Highlight prior employment in a similar field and secure a letter confirming contract renewals.
Challenge 2: Income Gaps Between Contracts
Periods without income can raise red flags for lenders.
Solution: Provide clear explanations for gaps and focus on showing consistent earnings over time.
Challenge 3: Variable Income
Contractor income often fluctuates from month to month.
Solution: Use lenders whose average income over the past 12 months or more to account for variability.
Key Benefits of Working with a Specialist Broker
1. Access to Contractor-Friendly Lenders: Brokers know which lenders cater to contractors.
2. Streamlined Applications: They’ll ensure your documentation is complete and compelling.
3. Tailored Advice: Brokers can help you maximise your borrowing potential.
Frequently Asked Questions
Q: Can I get a mortgage as a contractor with less than 12 months of contract history?
A: Yes, some lenders accept contractors with short work histories if you have relevant prior employment or ongoing contracts.
Q: How much can I borrow as a contractor?
A: This depends on your income and lender criteria, but many lenders use your day rate or annualised income to calculate affordability.
Q: Do I need a larger deposit as a contractor?
A: Most contractors can secure a mortgage with a 5–10% deposit, though a larger deposit may improve affordability.
Professional Contractor Mortgage Guidance
If you’re a contractor looking for professional mortgage guidance, we’re here to help. Our specialist knowledge and lender relationships enable us to provide expert advice tailored to your situation.
Schedule your consultation today. We’ll discuss your circumstances, explain your options, and provide honest advice about the best approach for your contractor mortgage application.
