People working as contractors now make up 15% of the work force in the UK. A study carried out by ITJobwatch found 97% of contractors are happier than when they were regularly employed. Working as a contract gives you many benefits from being your own boss to a more flexible working life, this gives you a better work life balance and the option to work more and benefit financially.
While your work as a contractor may not be as steady as an employee there are many lenders that are willing to lend to freelancers and contractors. Most high street lenders are ideally looking for 3 years of accounts for self-employed mortgages but that doesn’t mean you will not be able to secure a mortgage. A lot of lenders are loosening their criteria on contractor mortgages and there are specialist lenders who are looking to lend to the self-employed.
Getting a Mortgage when on a day rate
Depending on your circumstances lenders will assess your income differently; some lenders will work out your day rate annually taken into account holidays and gaps in your contracts, so they will assume 46 to 48 working weeks per year. Some lenders will require you to have a 12 month contract in place.
Example if you normally work a 5 day week and your day rate is £500
£500 x 5 Days per week = £2500
48 weeks per year = £120,000 per year
If you have recently become a contractor and do not have a successful track record behind you lenders may want to dig in deeper and see your contract and agreements and check how qualified you are in your field before making a decision.
How much can a contractor borrow for a mortgage?
How much you can borrow for your contractor mortgage is likely to depend on your personal circumstances and is why we recommend speaking to one of our specialist advisors who will be able to give you personalised advice.
The amount will vary depending on your credit history, deposit size and income. The usual amount lenders will lend to contractors is between 4 and 5 times your income, some will lend up to 6 times your income.
Joint Mortgage Application partner is a contractor
If you are applying for a joint mortgage with and your partner is employed full time this will strengthen your application and may help to get more high street lenders to consider your application. This is due to the stability your partner brings. While your partner’s income will strengthen your application it is still important to ensure you can show your income is stable and you have consistent earnings.
While a partner will help it ultimately comes down to your circumstances if you have a good history of contracts and steady income you must still be able to pass the affordability checks and yours and your partners credit score will still impact the decision making process. It is advisable that both you and your partner check your credit reports before applying to ensure they are correct and up to date.
Contractor with a limited company applying for a mortgage
If you are a contractor that has set up a limited company for your earnings and expenses to go through then your mortgage application will be assessed differently to that of a sole trader. For Limited company directors many lenders will look at your salary and any dividends as your income and not any retained profits or other earnings. If you are taking a low salary this many affect the amount that you are able to borrow, it’s a good idea to speak to a specialist lender if this is the case that will be able to take all income and any retained profits into account.
Contractor mortgage with bad credit
If you are a contractor and have a bad credit history it may prove difficult to get a mortgage through a high street lender. This doesn’t mean you won’t be able to get a mortgage but that will depend on your circumstances there are lenders who specialise in adverse credit mortgages. If you have a bad credit history it is important to check your credit file and work to rebuild your credit rating. If you have already been rebuilding your credit rating and you have no CCJ’s or missed payments within the last twelve months then it is still possible to get your mortgage application approved but you may find you will get a high rate of interest due to the added risk that the lender will be taking on your application. It is worth speaking with one of our bad credit specialist mortgage brokers so they can assess your actual circumstances and help you to find a mortgage product to suit your needs.
Strengthen your contractor mortgage application
To ensure that you have the best chance of getting your mortgage application approved there are a few things you can do to strengthen your application and improve the chances of a lender accepting your application.
Offer a large deposit – the larger your deposit and the smaller your LTV ratio is the less risk a lender will have to take, this will make a lender look at your application more favorably.
Evidence of Ongoing Work – lenders are looking to see if you have long term security, so if you have contracts that show you will be getting paid for the next 12-24 months or any evidence that shows you will have a stable income for the next 12 months make sure these documents are made available for the lender to review.
Minimise Breaks in work – Although being able to take time off is a perk of being a contractor it is best to minimise breaks between works before applying for a mortgage. If you have had a lot of breaks within the last 12 months it may make lenders more wary of your application.
Credit Score – Ensure that you check your credit score using the three big credit referencing agencies (Experian, Equifax and Callcredit) Ensure your details are up to date and if you see you have a low credit score work on increasing this as this will increase your chances of being accepted for a mortgage.
To sum up being a contractor may make your application for a mortgage more complex but there are definitely lenders out there looking to lend to contractors, high street banks have strict criteria and if you don’t fit their model you may be rejected so it is best to seek advice from a contractor mortgage specialist, if you would like to speak with an experience advisor you can call us for free advice on 0161 209 6700 or fill in one of our contact forms.