Contractors
As a contractor, you may find that securing a mortgage can be more challenging compared to being fully employed. Whilst contracting offers flexibility and independence, it can complicate matters for lenders due to the variable nature of your income. However, with the rapid growth of the self-employed and contracting in the UK, there are multiple lenders who are happy to lend to you.
Who is classed as a contractor?
Mortgage lenders consider different types of contractors, such as:
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Employed on a PAYE basis with a fixed-term contract
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Self-employed as the owner of a limited company or a sole trader
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Working for clients on a contract basis, potentially on a day rate
How long do I need on my current contract to get a mortgage?
The length of time remaining in your contract is an important factor for mortgage lenders. The majority of lenders require a minimum duration left on your current contract, while a few others look for a minimum amount of work experience or a specific period of contracting.
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Lenders also examine employment gaps and can be concerned to lend to a contractor who has aa employment gap of more than eight weeks within a 12-month period.
How much can you borrow?
This is completely dependent on your circumstances and will be evaluated based on factors such as:
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The level of your income: Some lenders may consider your average income over a number of years.
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Employment status: Whether you are employed or self-employed.
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Deposit size: The amount you can put down as a deposit.
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The majority of lenders will lend between 4.5 to 5 times your income, providing you meet their lending criteria. However, higher multiples are possible in certain circumstances, such as for those with an income of £75,000+
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If you’re employed on a daily rate, lenders tend to ‘annualise’ your gross contract rate. For example, if you earn £500 a day and work 5 days a week, a lender may annualise this figure, often allowing for 4-6 weeks for holidays or gaps in employment:
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Day contract rate: £500 x 5 days per week = £2,500
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Multiplied by 48 weeks in the year = £120,000
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5x income multiplier = £600,000 potential borrowing
Which lenders consider contractors?
While many mainstream lenders offer mortgages to contractors, most will treat them as self-employed and assess them based on their self-employed earnings. Other mortgage lenders have stricter criteria or only lend to those with a certain level of income or employment history. However, there are several banks and building societies that are more contractor-friendly and may offer more flexible lending options.
How can Knightwood Mortgages help?
Contractor income can often be complex. Having a broker experienced in dealing with contractors can help you understand all available options and give you the best chance of success with your application.
At Knightwood Mortgages, we're dedicated to making the contractor mortgage application process as easy as possible. Contact us to find a suitable mortgage deal as a contractor by emailing services@knightwoodmortgages.co.uk or calling 03301 336045.
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