Getting a mortgage as an independent contractor can be tricky – but it’s not impossible. You just need to bring some extra paperwork to the table to prove you can afford it.
In this guide, we’ll explain everything you need to know about contractor mortgages.
Mortgage lenders will usually consider you a contractor if:
You may also count as a contractor if you’re an agency worker or on a zero-hours contract. The main thing is you’re taking on one contract at a time.
On the other hand, a lender will probably class you as a freelancer if you’re self-employed and working with several clients at the same time. Even though you’d have multiple streams of income in this scenario, some lenders may view a freelance portfolio as less reliable than a single, longer-term contract.
Yes! Being a contractor won’t stop you from getting a mortgage loan. However, the application process can be a little more complicated.
For starters, there’s more pressure to prove your income than if you were in a permanent position with a company. Some lenders want to see two to three years of accounts to make sure you can afford your mortgage repayments. Compare that to salaried employees, who can often get a mortgage based on their last three months of payslips.
Meanwhile, some high street lenders can be spooked by the fact that your contract has an end date. Although you might earn more than your full-time counterparts, if your contract only runs for 3, 6, or 12 months, the lender will want to know what happens to your income when your project finishes.
Now, you might not be worried. You know that your client is happy and will probably renew your contract. You’re also sure that you’ve got a solid track record in your field, and you could pick up another job if you had to.
Unfortunately, your self-confidence isn’t usually enough for mortgage lenders. They see this “insecure” approach to employment as high risk. They’re less likely to offer you an attractive mortgage deal when they follow their strict affordability assessment (more on that below).
But don’t lose hope. Getting a mortgage when you’re self-employed comes down to working with the right lender and proving that you can afford the repayments. If you can do that, you should have access to the same deals and rates as everyone else.
If you’re contracting through your own limited company, lenders might ask for evidence of dividend payments too. And they’ll sometimes ask for proof of upcoming work, depending on how long your current contract has left to run.
Armed with this information, lenders usually work out your average profit over the past few years. Once they have this figure, they can see whether you’ll be able to make your monthly mortgage repayments.
Yes, depending on the lender. Some specialist lenders will calculate your yearly income based on your day rate rather than your profit.
They do this by multiplying your contract rate by the average number of days you work a week, then multiplying the total by the number of weeks you expect to work throughout the year.
A mortgage broker (like Habito) can help you find a lender who’ll accept your day rate as proof of income.
Because it’s harder to prove your annual income as a contractor, there’s a bit more prep involved when you make your mortgage application. In addition to your tax returns and accounts, you’ll need to supply:
Plus, like any applicant, contractor or not, you’ll also need:
Here’s a list of everything you’ll need in more detail.
Most lenders will also want to know how much you spend on bills and living expenses. That’s because they want to be certain you can afford to make your mortgage payments on top of your other outgoings. You’ll be asked about things like:
Here’s everything you need to know before applying for a mortgage.
There’s no simple answer here because your circumstances are unique.
When you apply for a mortgage as a contractor, the lender will carry out something called an affordability assessment based on the value of the property you want to buy and your monthly income and expenses. This helps them figure out if they’re happy to lend you money, how much they’re willing to lend, and at what interest rate.
Like any other mortgage application, having a good credit score and a healthy deposit will go a long way towards improving your chances of getting a mortgage when you’re a contractor.
Here’s why:
Searching for the right mortgage while contracting can be tough. That’s why it makes sense to work with a broker who understands the contractor mortgage process inside and out.
As a “whole of market” broker, we can help you find the best deals and exclusive offers from contractor-friendly lenders.
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The lowdown on getting a mortgage and buying a home when you're self-employed.
Habito specialises in helping you get the best mortgage or remortgage, all online, for free
