Contractor Mortgages: A Tricky Business

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Working as a contractor can be extremely lucrative but it can make acquiring a mortgage difficult. The upside to contractor mortgages is that companies can recruit highly skilled people for a short period of time and, in return for that flexibility, they can pay excellent rates, often £350 to £500 per day. The downside is that these contracts have to be renewed constantly, resulting in a real risk that a contractor might have periods in between contracts where they earn little.

A selection of lenders will allow contracts as short as six months if they have been renewed before, or first contracts over 12 months. Each lender’s criteria are very diverse on the subject of contracts and everyone’s circumstances will be different. Underwriters also consider many other factors when assessing contracts such as:

  • Length of time with current employer
  • If the contract has been renewed before
  • Remaining term of the current contract
  • If the current contract is likely to be renewed and, if so, for how long
  • The prospects of obtaining alternative employment in the same type of work at a similar salary
  • Whether the contract is connected to a specific project

If you are a contractor, it’s advisable to speak with a broker as early as possible as you may discover there are only narrow windows where you will be considered an acceptable case. If you don’t act quickly enough you may find yourself too close to the end of an existing contract and therefore unable to satisfy the lender’s criteria.

Typically, contractors are encouraged to set up limited companies for tax purposes and, as a result, may not draw as much from these companies as they earn from their contracts. This presents a problem when they come to raise a mortgage as most lenders will look at the salary and dividend the limited company pays; if that’s significantly lower than the contractor’s gross income, they may find they can borrow far less than they first expected.

However, some lenders take a slightly different approach and are tailored with contractors in mind. Lenders such as Clydesdale, Saffron, Kensington and Metro all take the gross contract income into account for affordability purposes. As a rule, they will multiply the average weekly rate by 46 weeks to give the total annual gross income. Of course, standard affordability rules still apply, and many of these lenders require a minimum gross income of £75,000 per annum to qualify. Speaking to a broker early in your journey will ensure you buy at the right time so you don’t miss any of those narrow windows your circumstances may afford.

AALTO Mortgage and Property Solutions is always broker fee free, we receive our commission straight from the lender, so you can be assured that we can do the hard work and research without it costing you a penny.

Your home may be repossessed if you do not keep up repayments on your mortgage.

The overall cost for comparison is 6.4% APR

The actual rate available will depend on your circumstances. Ask for a personalised illustration.

Picture of Author: Stuart Phillips

Author: Stuart Phillips

Fully CeMap qualified, Directly Authorised by the FCA and with over a decade of experience, Stuart has a wealth of experience in both specialist BTL and residential mortgages.

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