This guide was last updated 9 January 2023
The way we all work has changed dramatically over the past few years, no less in the last few months, and in today’s economic climate it has been interesting for us as a business to see the changing way in which our clients are working.
Often we’re asked ‘can I get a mortgage as a contractor?’ – the answer is yes, you can!
There seems to be an increasing number of applicants who now work on a “non-standard” flexible basis whereby a permanent PAYE position gives way to either a self-employed, freelance or contractor basis.
Whereas it used to be the preserve of those in the IT specialist or media world who work on various short-term contracts, now we are seeing a growing number of industries, from medical to finance and graphic design to teaching, choosing this option of increased flexibility.
For many it is a precursor to full self-employment and setting up a limited company, whilst for others working as a contractor is simply an easier and more profitable way of working.
The issue for this growing number of contractors is that mortgage providers have struggled to understand these working patterns. Previously, lenders may not have offered mortgage loans to those who have less than 3 years of accounts, or only have a defined contract period. So how can you get a mortgage as a contractor? Read our helpful guide below for our top tips.
More often than we like, we hear stories of contractors who have approached a number of different high street lenders and have been met with the same response; “sorry, you do not meet our standard criteria”. With an awful lot of lenders, it really is as simple as that – either you tick all of their boxes or they are not interested. Unfortunately for some lenders, short-term contracting does not give them the long-term confidence that permanent employment does.
This can be extremely frustrating, especially if you are keen to wrap up the deal that will get your hands on the keys for your dream home. However, having access to a wider network of mortgage lenders can open up doors that may have been closed up until now.
For a contractor or freelancer on a fixed-term contract, lenders do not have the luxury of being able to assess guaranteed employment and income in order to determine lending options.
They, therefore, need to make themselves comfortable that the income currently being received is going to continue. In order to do so, they will want to assess wider impacting factors including the experience of the applicant in the given industry, the person’s history of contracting, the length of the current contract, and the likelihood of it being renewed.
Bear in mind that lenders offering contractor mortgages will each have their own criteria in line with this and that is where it can get quite complex.
Considered the ‘gold standard’ of contractor types in a lender’s eyes, will have a lengthy history in the given industry along with at least a two-year history working on fixed short-term contracts. They will want to have seen a contract renewed previously, whether this has been on a 3, 6 or 12-month rolling basis and at least 6 – 12 months remaining on their existing contract.
Once they have comfort that this criteria has been satisfied, they will then look to assess the lending amounts available. A typical approach to lending multiples is to look at the daily rate, not including VAT, multiple this by 5 to give a weekly rate, and then multiply this weekly rate by between 46 and 48 to allow for small gaps in employments and breaks for holidays. This will provide a lender with the ‘targetable’ annual income of a contractor and they can look to multiply this, after taking into account any monthly commitments, by anywhere between 3.5 and 5 times to give the maximum lending amount available dependent on each lender’s criteria.
Previously, lenders would consider a mortgage application only when there was a minimum of 6 months remaining on a contract with at least a 2 year history in the same line of work, be that on a full-time employed basis or otherwise.
However, there are now more options available to certain professions and those on a daily rate of over £300.
There are now more mortgage options available for experienced contractors working on a gross pay basis. Lenders are able to take comfort in continuous income by assessing the most recent 2-3 years business accounts and averaging the income accordingly.
When assessing Self-Employed income, lenders will fall into two categories; those that take only the Net Profit Before Tax figure and those that will look to assess the Directors Remuneration/Salary and Dividends into account. A good broker can review business accounts and advise of the leading options and lending limits available from such lenders.
Today, lenders are applying a humane approach to decision-making when it comes to considering applications for the three categories of contractor mortgages. The ever-changing types of employment structures offered by large companies are becoming more commonplace, especially since the Coronavirus pandemic is continuing to impact daily life.
The good news is that Coreco has proactively built up relationships with lenders who are able to understand this type of borrower. As such we can assist in providing finance that considers your personal situation rather than whether or not you fill a tick box. We get to know you, and subsequently take a more pragmatic approach to actually understanding your individual circumstances and what made your choice of employment so attractive in the first place.
Our extensive product knowledge means we know which lenders will take the time to listen to your application and provide reasons why they can lend to you, rather than excuses why not to.
As an independent mortgage adviser, we are not limited to a restricted panel of mortgage lenders like some others. We have access to them all, whether that be a High Street bank, broker only provider, or Private Banking facility.
For larger loans, specialist lenders will consider the combined salary and dividends you are drawing from your business, or work off a calculation of your day rate. Suddenly that can mean that mortgage affordability is no longer an issue.
We hope that all this means that you can take comfort in the knowledge that no stone will be left unturned in finding you the right mortgage, in the right structure and at the most suitable price for you. We take our time to ensure you have the necessary finance, as well as protection in place, to see off any eventuality.
If you are finding it difficult to find the money for that dream home, then worry no longer. We have the expertise to turn that dream into your reality.
Give us a call on 020 7220 5110 or fill out the form below to arrange a no-obligation chat!
Your home may be repossessed if you do not keep up repayments on your mortgage.
A fee of up to 1% of the mortgage amount may be charged depending on individual circumstances. A typical fee is £495