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Contractor Mortgages – how to find a good deal
For contractors buying a home, there are a few helpful pointers that will help you get a good mortgage deal. They range from finding contractor friendly lenders to improving your credit score.
What is a Contractor mortgage?
It can be a little tricky for contractors to find a competitive mortgage because different lenders have a variety of attitudes towards contract workers and the Self-Employed.
A lender needs reassurance that you can meet the remortgage payments comfortably. To get a good mortgage offer as a contractor, you will need to show the lender that your income is reliable.
Contractors might have gaps between jobs that can make some mortgage companies nervous. Others, meanwhile, realise that contractors usually earn well and are good potential mortgage customers.
How much can I borrow as a contractor?
Lenders will often give you around four to five times your income as a loan. So, when you’re working as a contractor, the challenge is to confirm what your income really is. That could depend on how your business has performed in the past year.
Because of this, some lenders will base their offer on your contract rate or day rate. They’ll ask how many days a week you work and allow for your annual leave.
As a result, different lenders may have very different offers and rates for contractors, so the more research and comparison you can do, the better your chances of getting a good deal.
How are contractors assessed by mortgage lenders?
Lenders assess contractors in different ways depending on their criteria, but also depending on how the contractor is set up for work.
They may ask for business and tax records to help them calculate your income and how much to lend you.
Sole trader contractors
If you’re a sole trader you’ll usually need to supply 1-3 years’ self-assessment forms stating your annual income. If your income varies year by year, the lender will take an average.
Some lenders, however, will give you a mortgage based on your day rate and length of contract.
Fixed term contractors on PAYE
If you’re a fixed term contractor on a monthly salary, a lender will usually base their calculations on that income. You will often need to prove you’ve been contracting for at least six months and that you have at least six more months to go on your current contract.
Contractors running a Limited Company
If you are the director of a Limited Company lenders may ask for 1-3 years’ certified financial accounts. Most will take your income as the stated salary plus dividends, but some will include the net profit in your business too.
Umbrella company contractors
Some contractors work for an umbrella company, in which case lenders want details about your working history. It helps if you’ve had your contract renewed with the umbrella company.
How can I improve my chances of getting good rates?
When you apply for a mortgage of any kind, the bigger your deposit, the better the lender’s offer. A 10% deposit is the minimum currently, but if you can reach 15% or even 20% lenders will be more likely to accept you and offer you better interest rates.
You should also explore the different types of mortgage. Many people prefer to borrow based on a fixed rate deal, as it means your monthly payments stay constant. But if you don’t mind a little risk, you could find lower repayments with a tracker mortgage, which follows the Bank of England base rate.
Take a look at your credit rating and find ways to improve it if necessary, as good credit will get you better rates. Making sure you’re on the electoral roll is an easy way to improve your score.
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Once we have found you the best rate, you will want to move fast to secure the loan. It helps to have all your paperwork ready, including tax forms, bank statements and work contracts.
Can a Mortgage Broker help me get a Contractor Mortgage?
Mortgage Brokers are experienced professionals who specialise in mortgage advice. We’re here to do all the legwork and secure a mortgage deal that works for you.
Because the contractor mortgage market can be complex, it really pays to have someone comparing all the options on your behalf. We’ll get to know you, explore your specific situation and find the most competitive mortgage products.
Blue Pepper Mortgages is registered in England And Wales and is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority, so you can relax and let us manage everything – from exploring the options to the end of the mortgage application process. We’ll support you at every stage, so contact our registered office today.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE