What is an IT Contractor Mortgage?
An IT contractor mortgage is a type of mortgage designed specifically for contractors who work in the information technology (IT) industry. IT contractors are typically self-employed or work on a contract basis, which can make it more difficult for them to secure a mortgage through traditional channels.
An IT contractor mortgage is designed to take into account the unique financial situation of IT contractors, who may have irregular income streams or gaps in their work history.
These mortgages may offer more flexible lending criteria, allowing contractors to borrow based on their contract rate rather than their historical earnings, and may require less documentation to prove income.
IT contractor mortgages may be available from specialist lenders who understand the needs of self-employed or contract workers in the IT industry. There are also a number of high street mortgage lenders that offer specialist criteria to IT contractors.
Best IT Contractor Mortgage Lenders | IT contractor friendly mortgages
Halifax, Clydesdale, Metro, Virgin, Leeds, Scottish Widows, and Nationwide are among the mainstream lenders in the UK that offer specialist criteria for IT contractors. These lenders may offer more flexible lending criteria, such as considering contract rate rather than historical earnings or requiring less documentation to prove income,
Halifax is recognised as one of the leading lenders for IT contractors in the UK, having been among the first to recognise the unique financial circumstances of this group of professionals. Unlike traditional borrowers.
When assessing the eligibility of IT contractors for a mortgage, Halifax typically looks at the applicant’s annualised contract rate, which is based on their hourly rate and the number of hours they work in a year. For instance, Halifax may calculate the applicant’s annualised contract rate based on 48 weeks of the year, allowing four weeks for annual leave. Halifax will then consider this figure when assessing how much the contractor can borrow.
Halifax does not have a minimum income requirement for IT contractors, which means that even contractors with limited experience or low income may still be able to qualify for a mortgage. Instead, Halifax considers a range of factors, such as the contractor’s credit history, the length of their contract, and their prospects for future work.
Scottish Widows and Halifax are part of the Lloyds banking group and have similar criteria.
Clydesdale & Virgin – same brand
To be classified as employed for income and affordability assessment, IT contractors must meet certain criteria.
They should have a minimum income of £50,000, with at least 12 months of contracting experience or a two-year track record employed in the same line of work. Additionally, they should have a minimum of three months remaining on their current contract or evidence of renewal and not have more than a six-week break between contracts.
Professional contractors are allowed to have a limited company as long as they do not employ other contractors or have more than one contract. For income assessment, their current and previous contracts, or previous P60s if they have been contracting for less than 12 months, and three months’ bank statements evidencing the credits from the contract must be provided.
The bank statements must demonstrate that the contractor has received the full contract value. If they receive a lower amount, they need to provide a detailed explanation for any deductions. If they are paid through an umbrella/payroll services company, the last two months’ payslips must be provided as well.
For contractors earning less than £50,000 or employed on a fixed-term or agency basis, evidence of a two-year track record of this income type must be provided.
If the customer is working for their end client directly on a PAYE basis, their application will be considered. The current contract should be at least 3 months long. If the contract has no end date, it should have been active for at least 3 months. The applicant must have a history of contracts that lasted at least 12 months with no more than 6 weeks of gaps in between. It is essential that contracts have a start date.
If the current contract is about to end within four weeks, we may ask for proof that it has been renewed or evidence that a new contract has been obtained. If the current contract has no end date, we will verify that it has a minimum of four weeks notice period, or we will request confirmation that the contract will run for at least another four weeks.
Income will be assessed as guaranteed income, which is calculated by multiplying the hourly or daily rate by the guaranteed hours or days. We will require evidence of the current contract, 12-month contract history, and three months of bank statements, showing the receipt of the contracted income at the level indicated in the application.
If the applicant can provide P60s demonstrating a continuous history of working within the same industry for at least 24 months, we may not require a 12-month contract history.
Nationwide is an inclusive lender that accepts applications from day rate IT contractors, regardless of their rate. However, to be eligible for a Nationwide mortgage, contractors must have at least one year of contracting experience.
Nationwide requires a minimum of four weeks remaining on the current contract, but they understand that contracts are typically short-term and may accept less than four weeks. If a contractor has less than four weeks remaining, Nationwide may request an extension or evidence of a new contract.
Nationwide prefers applicants who have worked consistently in the preceding 12 months and does not like significant gaps in employment history. However, they are accommodating and allow gaps of up to 12 weeks. To comply with their fixed-term contract policy, Nationwide requires an end date on the contract. Nationwide calculates the gross contract value by multiplying the day rate by 5 days and 52 weeks, then using 80% of this value.
They do not use the previous year’s average day rate for calculations…
For example, if the day rate is £350, the gross contract value would be £350 x 5 days x 52 weeks x 0.8 = £72,800.
If the hourly rate is £42 per hour, and the contractor works 37.5 hours per week, the gross contract value would be £42 x 37.5 hours x 52 weeks x 0.8 = £65,520.
Smaller building societies that offer IT contractor friendly mortgages. Kensington, Furness, Saffron, and Newbury building societies are smaller lenders in the UK that also specialise in IT contractor mortgages.
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How to prove IT Contractor income
When applying for a mortgage as an IT contractor, there are several documents that you will typically need to provide to lenders to prove your income.
These include your latest contract and evidence of previous contracts, which will demonstrate the length and consistency of your income as a contractor. In addition, some lenders may request a copy of your CV as evidence of your experience and qualifications.
How much can I borrow?
The amount that an IT contractor can borrow for a mortgage depends on various factors, including how their contract income is treated. Generally, most lenders will offer a loan of around 4.5 to 5 times the income, while some may consider up to 5.5 times the income for those earning £75,000 or more.
For instance, a contractor earning £500 a day working five days a week could have an annual income of £120,000 (£500 x 5 days x 48 weeks) and potentially borrow up to £600,000, subject to meeting other lending criteria and providing the required deposit.
Interest rates for IT contractor mortgages
The interest rates that IT contractors can access are not set in stone, and they can fluctuate based on multiple factors. These include the contractor’s financial circumstances, such as their credit score, income, and deposit size, as well as the state of the mortgage market at the time of application.
Generally, mainstream high street mortgage lenders tend to offer lower interest rates compared to specialist lenders if you are looking to secure a mortgage.
Contractor mortgage broker
A mortgage broker can help you find lenders who are willing to work with IT contractors. Not all lenders are willing to work with independent professionals like IT contractors, and those who do may have strict requirements or charge higher interest rates.
A mortgage broker can help you find a lender who is willing to work with your unique situation, and who offers competitive interest rates and favourable terms. Overall, a mortgage broker can be a valuable resource for IT contractors looking to secure a mortgage. They can help you navigate the complex mortgage process, understand your options, and find a lender who is willing to work with you.