Contractor mortgages are mortgages from specialist lenders where the income criteria are based on your contractor day rate rather than your accounts. If you aren’t in a permanent role and don’t have a steady source of income, or you are set up via Limited Company and pay yourself a low salary, it can be much more difficult to find a competitive mortgage deal and get on the property ladder.
Some high street lenders are more reluctant to lend to contractors, so often these deals are harder to find and the interest rate offered may be unfavourable. This also applies to contractors paid via an umbrella company.
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Simmonds Mortgage Services, mortgages for contractors
At Simmonds Mortgage Services, we work with a range of contractor friendly lenders in the mortgage market, who will accept a mortgage application from borrowers who work on a contract rate and annualised contract rate, rather than an annual salary.
Our long experience of the mortgage market means we can help you find not just any deal but the best mortgage for your circumstances.
Choosing the wrong lender can result in frustration during the application process or ending up with a poor deal.
What is a contractor mortgage?
There are some specific contractor mortgages in the mortgage market, however most lenders just add in flexible criteria and understand how mortgages for contractors should work, they then lend via standard rates, these are great if you have erratic income, or don’t have a trading history in their own limited company or via an umbrella company. Lenders usually look for a track record in same industry or contracting.
How do mortgages for contractors work?
Contractor mortgages are usually lent on the basis of you providing a copy of your current contract as well as evidence of your contract day rate. The maximum loan amount will often be calculated using:
Day rate x number of days worked per week x number of weeks per year (usually capped at 48).
So, for a contractor earning £250 per day, 5 days per week for 48 weeks a year, the annualised contract rate would be 250 x 5 x 48 = 60,000. The maximum loan advance would depend on mortgage lenders’ own multiples but is likely to be between 180K to 300K.
Types of mortgages available for contractors
It is possible for contractors to get good mortgage deals whether for a first time buyer, home mover or becoming a landlord. Let’s explore your options:
First-time buyer contractor mortgages
First-time buyers often wrongly assume that if they aren’t in a permanent role, there’s no chance of getting a mortgage, but that’s not true.
A good mortgage broker who understands the contractor mortgage market, has experience in contractor mortgage criteria, and knows how to make a contractor mortgage application can find you a great mortgage deal.
Home mover contractor mortgages
Once you have had a mortgage before, it may be a little easier to get a new one when you want to move home. If you are able to port your mortgage onto your new property this may be the best solution as your mortgage provider already knows you and has assessed your risk level.
Of course, the mortgage market is constantly fluctuating so deals that were possible when you took your previous mortgage may not be available any longer. You may need to move lenders and that’s when it can be beneficial to use a home mover mortgage broker who can go to the whole of market to find you the right product.
If you have experienced adverse credit, broker can also help source the right options for you. Lending criteria varies a lot, from lender to lender so seeking advice in the mortgage market is vital.
Umbrella company mortgages
Umbrella company mortgages
Working under an umbrella company might make things easier for you when it comes to tax, invoicing, and IR35, but it can make it harder to find the right mortgage deal. Many lenders see contractors as too high risk and don’t fully understand or take into account your expenses or additional payments such as holiday pay when working out how much they would lend you.
By using a mortgage advisor who is familiar with the contractor market, you can approach the right lenders who understand the nuances of umbrella companies and will use your full income in determining the amount they will lend. Brokers will source the right mortgage term and right deal for your situation. If you are a lower rate or higher rate personal tax it shouldn’t affect your options as its based on the contract value only.
Remortgaging for contractors
If you are looking to remortgage, perhaps to release equity in your current property or to consolidate other debts, you might find that it’s not as tricky as it was to get your original mortgage. After all, you now have a good payment record, your property has probably increased in value so you can take a lower loan to value and your income may have increased.
If you were employed and you are now a contractor, however, this may spook some lenders so you might need to look at different lenders who are more accepting of self employed contractors.
Buy to let mortgages for contractors
There are no unique Buy to Let products specifically for contractors so high street banks who offer buy to let mortgages may be happy to lend to contractors.
These mortgages are often lent on the basis of the rental income covering 125% of the mortgage payment rather than the borrower’s monthly income, so your lender may be much less concerned about your contractor status than they might be for a residential mortgage. Buy to let mortgages are also something a broker can help you with.
What is the mortgage application process for contractors?
The application process is similar to any other mortgage but the documentation is a little different. Arranging mortgages for limited company contractors who work on a day rate can actually be easier when it comes to the paperwork. All you will require is:
- Signed copy of your current contract
- 3 months’ bank statements
- Proof of ID
- Your CV (to show your work history)
You may also be asked to provide information about previous contracts and your credit history.
Contractor mortgage eligibility
As well as working out your annualised rate, lenders will assess eligibility based on the following factors :
- The type of industry you’re in
- The length of time you’ve been contracting for
- How long is remaining on your current contracts
- Whether and how often you’ve had contracts renewed
We can find the right contractor mortgage for you. Get in touch with us today
Give us a call on 01184 693037 for a no-obligation chat about your situation.