The mortgage landscape has changed significantly in recent years, with lenders adapting their criteria to accommodate the growing number of self-employed individuals and contractors. As a contractor in the UK, you may be wondering whether you can obtain a mortgage and what factors lenders consider when determining your eligibility. This article aims to guide you through the process, outline key considerations, and provide tips on how to increase your chances of securing a mortgage as a contractor.
Understanding mortgage eligibility for contractors
While the lending criteria vary among different mortgage providers, there are several common factors that determine your eligibility as a contractor. These include:
Contract type and duration: Lenders typically look for contractors with a stable work history, preferably on a long-term contract or with a series of shorter contracts within the same industry. Having at least 12 months of continuous contracting experience is often a prerequisite.
Income: Mortgage providers will assess your income and affordability by looking at your average earnings over the past 1-3 years. This includes your day rate, bonuses, and dividends if you operate through a limited company.
Credit history: A strong credit history is vital when applying for a mortgage. Lenders will consider factors such as outstanding debts, late payments, and the number of credit applications made in a short period.
Deposit: Contractors are usually required to provide a minimum deposit of 10–15% of the property’s value, although a larger deposit can improve your chances of approval and lead to more favourable interest rates.
Steps to securing a mortgage as a contractor
Gather financial documentation: As a contractor, you’ll need to provide various financial documents as proof of income, including tax returns, bank statements, and contract agreements. Ensure these are up-to-date and readily available when required.
Research mortgage providers: Some mortgage lenders are more contractor-friendly than others. Research and compare various providers to identify those with favourable terms and a track record of lending to contractors.
Seek professional advice: Engaging the services of a mortgage broker experienced in contractor mortgages can be invaluable. They can help you navigate the process, identify suitable lenders, and negotiate the best deal on your behalf.
Improve your credit score: Ensure your credit history is in good shape before applying for a mortgage. Pay down outstanding debts, avoid applying for multiple loans in a short period, and make sure you’re registered on the electoral roll.
Consider specialist lenders: If you’re struggling to secure a mortgage from high-street lenders, consider approaching specialist lenders who cater specifically to contractors and self-employed individuals. They often have a deeper understanding of your unique circumstances and may be more willing to lend.
Be prepared for potential challenges: As a contractor, you may face additional scrutiny from lenders. This may include providing more financial documentation, addressing gaps in your contract history, or justifying fluctuations in income. Being prepared to address these challenges can help streamline the process.
In summary, securing a mortgage as a contractor in the UK is possible, though it may require additional effort and preparation compared to traditional employees. By understanding the eligibility criteria, gathering relevant documentation, seeking professional advice, and improving your credit score, you can enhance your chances of securing a mortgage that suits your needs. As a contractor, it’s essential to research and approach mortgage providers that understand your unique circumstances to ensure a smoother and more successful application process.