As a director of a limited company — a Personal Services Company (PSC) — you own and control how your income is structured. Most contractors draw a low salary and take dividends, leaving the bulk of company revenue retained. This is tax-efficient. It is also, with the wrong mortgage lender, the thing that most dramatically limits what you can borrow.
A lender using salary plus dividends to assess your affordability might see an income of £35,000–£50,000. A contractor-friendly lender using your day rate formula sees the full £80,000–£130,000 or more that your contract actually generates. The difference in borrowing capacity between these two approaches can be enormous, and the difference between them is simply knowing which lender to approach.
The lender treats you as self-employed and uses your personal income from the company — salary plus dividends — as declared on your tax return. This is the approach used by lenders without a dedicated contractor policy. It typically requires one to two years of accounts and significantly understates your actual earning capacity.
The lender annualises your current contract rate using the formula:
Day rate × 5 days × 46 weeks = Assessed annual income
No company accounts are required. No SA302s. No P60s based on drawings. Just your current contract, confirming your day rate and remaining term.
Method 2 is only available through lenders with a dedicated contractor policy. It is the approach Mortgage Knight uses for virtually every limited company contractor application.
Eligibility varies by lender. Broadly
no minimum day rate required by Halifax. Accepted by NatWest, Accord, Nationwide and others.
minimum day rate of £326/day (£75,000 annualised) with Halifax. Other lenders may apply £500/day as the threshold.
accepted by Halifax and several others where the applicant has at least two years of prior industry experience in the same field.
some lenders require 12 months of contracting; others accept less where prior employment in the same sector is evidenced.
most lenders require the applicant to be the sole or majority shareholder of the limited company. Some accept joint ownership with a spouse or partner.
| Day Rate | Assessed Annual Income | Borrowing at 4.5× | Borrowing at 5× |
|---|---|---|---|
| £300/day | £69,000 | £310,500 | £345,000 |
| £400/day | £92,000 | £414,000 | £460,000 |
| £500/day | £115,000 | £517,500 | £575,000 |
| £650/day | £149,500 | £672,750 | £747,500 |
Where one applicant is a limited company contractor and the other is employed (PAYE), most contractor-friendly lenders will assess each income separately using the appropriate method. The contractor’s income is assessed by day rate; the employed income is assessed as normal. Combined affordability can significantly increase the borrowing capacity.
Mortgage Knight is a whole-of-market FCA-authorised broker (FCA No: 994617). We work with the full range of contractor-friendly lenders and present limited company contractor applications correctly from the outset — ensuring your income is assessed by day rate, not by what you draw from the company.
Broker fee: £495, payable on application.
The day rate route is not available to every limited company director. Where a contractor does not meet the lender’s threshold, or where the lender does not have a contractor policy, the self-employed route applies:
IR35 does not directly affect your mortgage application with contractor-friendly lenders. Halifax, NatWest, and Accord assess income from the gross contract rate regardless of whether you are inside or outside IR35. The method and the outcome are the same. Where IR35 has resulted in the contractor working through an umbrella company rather than their PSC, the umbrella payslips and underlying contract are used in place of company bank statements.
For the day rate route, you will typically need a current signed contract showing your day rate, client name, working days, and remaining term or renewal evidence, along with three months of business or personal bank statements, proof of identity and address, and proof of deposit. Company accounts are usually not required at the application stage for the day rate route, although they may be requested later by the underwriter if the case is referred for manual assessment.
Yes. Contractor-friendly lenders including Halifax assess limited company contractor applications using your current day rate contract. Full company accounts are not typically required at the application stage where the day rate route is used.
Not with the right lender. Contractor-friendly lenders assess affordability using your annualised day rate, not your salary or dividends. The amount you draw from the company is irrelevant to the income calculation.
Some lenders require 12 months of contracting history. Others accept less where you have at least two years of prior employment in the same industry or role. Day one contractors are accepted by Halifax and several other lenders.
It does not affect your mortgage with contractor-friendly lenders. Income is assessed from the gross contract rate regardless of IR35 status.
For IT contractors, Halifax applies no minimum. For non-IT contractors, the Halifax minimum is £326/day (£75,000 annualised). Other lenders may apply £500/day as a threshold.
Yes. Joint applications combining a limited company contractor and a PAYE employed applicant are accepted by all major contractor-friendly lenders.
