How do contractors get a mortgage?

If you are a contractor, you may be wondering if you are eligible for a mortgage. Mortgage lenders are historically cautious when it comes to fluctuating or self-employed income, so what are your options?

Contractors with complex incomes may face challenges getting a mortgage from traditional high-street lenders. However, some mortgage providers lend based on contract rates. Criteria varies but includes factors like contract length, type of work, income level, and industry experience.

Read on for our helpful guide on contractor mortgages, including how lenders may assess your earnings, how your deposit can affect your chances of approval, and what evidence you will need to gather for your application.

At Strive Mortgages, we believe that professional contractors deserve a level playing field when it comes to getting a mortgage. We specialise in helping contractors to find the right lender for their needs and securing a competitive deal. Contact us and one of our experienced brokers will be in touch.

Who is classed as a contractor?

For mortgage purposes, lenders consider different types of contractors.

For example, you could be:

• employed on a PAYE basis on a fixed-term contract
• self-employed as the owner of a limited company or sole trader
• working for your clients on a contract basis, perhaps on a day rate

Is it hard for a contract worker to get a mortgage?

Some mortgage lenders consider contract workers as higher risk than those in permanent employment, as their fluctuating income makes them more likely to default on monthly mortgage repayments.

However, there is no need to lose hope. There are lenders out there willing to consider you for a mortgage; you just have a slightly smaller pool to choose from. Having a solid track record of contracting with minimal employment gaps should provide you with plenty of options.

Contractors with higher earnings are also likely to face fewer difficulties. For example, if you are earning over £75,000 per year (or £500 per day), your mortgage application should, in theory, be considered in the same way as an employed applicant.

In fact, self-employed contractors often find it easier to secure a mortgage than other self-employed applicants. This is because self-employed people are assessed on their company’s net income or salary and dividend payments. Contract workers may use the gross value of their contract, which can be more advantageous.

Are there specialist mortgage lenders for contractors out there?

It’s important to note that there is no specific ‘contractor mortgage’ product as such. When we refer to a contractor mortgage, we are talking about deals from lenders with more flexible lending criteria and understanding contractor income nuances.

There are specialist lenders that offer far more favourable terms for contractors than regular mainstream lenders. A specialist lender may be more flexible on the remaining contract length and employment gaps, for example.

It’s wise to work with a mortgage broker like Strive Mortgages, who have access to many specialist lenders as well as traditional banks and building societies.

Does having a larger deposit increase contractor mortgage eligibility?

If you have a larger deposit, say 25% of the property’s value, it can improve your chances of being approved for a contractor mortgage. This rule applies to all applicants, not just contractors.

However, as long as you meet the lender’s affordability criteria (i.e. they are satisfied you can make the mortgage payments), there should be no need for a large deposit. It is possible to secure a mortgage as a contractor with a deposit of as little as 5%.

How long do I need on my current contract to get a mortgage? 

The length of time you have left on your contract is an important factor to lenders. Some require a minimum time left on your current contract, while others require a minimum work experience or a certain period of contracting.

For instance, Halifax considers contractors who earn more than £500 a day or £75,000 per year and have less stringent criteria (as of November 2023). This means that you may not need to meet specific requirements on the length of time left on your contract to qualify for a mortgage.

Lenders also scrutinise employment gaps and some may be less comfortable lending to a contractor who has a gap of more than eight weeks over a period of 12 months.

How much can you borrow?

How much you can borrow depends entirely on your circumstances and will be assessed on factors including:

• the level of your income – some lenders may be willing to consider your average income over a number of years
• whether you are employed or self-employed
• the size of your deposit

Most lenders will lend between 4.5 to 5 times your income if you fit their criteria, although it’s possible to get higher multiples in certain circumstances, for example, those with an income of £75,000 or more.

If you’re employed on a day rate, lenders may ‘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.

• Day contract rate – £500 x 5 days per week = £2,500
• Multiplied by 48 weeks in the year = £120,000
• 5x income multiplier = £600,000 potential borrowing

To learn about getting a mortgage using gross contract value, check out our guide here.

What documents do you need for a contractor mortgage application?

When getting a mortgage as a contractor, you typically need to provide the following documents:

• Valid ID. Such as a passport or driver’s license.
• Proof of address. For example, a utility bill, bank statement, or other official document that shows your name and current address.
• Proof of income. You must provide evidence of your annual income, such as contracts, invoices, or bank statements. Some lenders may require you to provide tax returns, your SA302 or accounts to verify your income.
• Company Accounts. If you contract through your own limited company, a mortgage lender may ask you to provide your most recent 2-year business accounts.
• Contract details. You need to give details of your current and past contracts, including the name of the client, the start and end dates, and the rate of pay.
• Business details. You must provide your business details, such as the name, address, and registration number (if applicable).
• Bank statements. You may need to provide recent bank statements to show your income and expenditure.
• Credit report. You are likely to be asked for a copy of your credit report to show your credit rating and history. Although, with the help of a broker, it may still be possible to get a mortgage with bad credit. 

As a contractor, what steps can you take to strengthen your mortgage application?

As an experienced mortgage broker, Strive Mortgages has helped many contractors improve their mortgage applications to convince lenders of their affordability.

Here are some of our top pieces of advice:

Save for a large deposit. Having a larger deposit helps reduce the lender’s risk and may make you a more attractive borrower. It can also help you secure a more competitive interest rate.

Timing. Having a reasonable period of time remaining on your contract or a contract renewal lined up will give you access to the best mortgage deals.

Keep employment gaps to a minimum. Having a history of regular contracts may increase your chances of success, as some mortgage providers are wary of lengthy or regular gaps between contracts.

Check your credit report. Make sure you check your credit report and correct any mistakes before applying for a mortgage. Having a good credit score increases the number of mortgage options available to you.

Use a specialist broker. A mortgage broker specialising in contractor mortgages can help you find the right lender for your needs. Strive Mortgages has a great deal of experience in this area and can steer you towards contractor-friendly lenders from our broad network.

Experience. Lenders are more comfortable lending to contractors with a solid track record of contracting or working in their industry. Some mortgage lenders insist on a minimum work history of two years, for example. The longer you have been contracting, the more chance you have of being considered. So, in some cases, it may be better to wait until you’re eligible for a more competitive deal.

Looking for a contractor mortgage? Get in touch with Strive Mortgages

Applying for a mortgage as a contractor may be a little more challenging than if you are in full-time employment, but with the help and advice of an experienced mortgage broker like Strive Mortgages, it can be a lot less stressful.

Allow us to assess your situation and find the most suitable lenders to improve your chances of getting a mortgage. We’ll even complete the mortgage application on your behalf to save you time and hassle.

Contact us today, and we’ll work hard on your behalf to find you a competitive mortgage.

For more information on mortgages for contractors, please contact a member of the Strive team, by emailing info@strivemortgages.co.uk or call us on 01273 002697.

Frequently asked questions on getting a contractor mortgage