Mortgages for contractors

Traditional mortgage lenders often base their decisions on straightforward salary figures, making it more challenging for contractors whose income structures can be more intricate. This is where specialist “mortgages for contractors” come into play, designed to take into account the unique circumstances of contractors. These mortgage products can provide flexible, practical solutions tailored specifically to the needs of contractors, offering a lifeline in the often tricky journey towards home ownership. Whether you’re a first-time buyer, looking to remortgage, or considering a buy-to-let investment, understanding the landscape of mortgages for contractors is an essential step in your financial journey.

What is a contractor mortgage?

A contractor mortgage is a type of home loan available in the UK that is specifically tailored for contractors. Contractors often find it challenging to secure a traditional mortgage due to their irregular income patterns. Traditional lenders tend to prefer borrowers with a stable, regular income, which is often not the case for contractors.

Contractor mortgages, however, take into consideration the unique financial situation of contractors, including their day rate and the contract length, rather than relying solely on traditional measures of financial stability like annual salary. This means contractors can potentially borrow more money than they might be able to through a traditional mortgage.

Although contractor mortgages were designed to assist this particular group of people, they are not exclusive to contractors. Freelancers, consultants, and other self-employed individuals can also apply for a contractor mortgage.

Can I get a mortgage as a contractor?

Yes, as a contractor in the UK, you can apply for a mortgage. Lenders recognize that the traditional assessment of affordability based on a fixed annual salary doesn’t apply well to contractors. However, the process might be a little more complex than for an individual in permanent employment.

When evaluating a contractor’s mortgage application, lenders will consider:

Contract Rate: Lenders will look at your day rate and calculate an annual income based on the rate, the number of working days in a week, and projected over a number of weeks (usually 46–48 weeks to account for holidays or gaps between contracts).

Contract History: Lenders will typically want to see a history of steady contracting work. Some may require you to have been contracting for at least six months to a year, while others may want two years of contract history.

Future Contract Security: Some lenders may want to see evidence that your contract work will continue. This could be in the form of existing contract extensions or a consistent history of contract renewals.

Credit History: As with any mortgage, lenders will look at your credit history. A good credit rating can significantly improve your chances of getting approved for a mortgage.

Deposit: The size of your deposit could also play a part in the lender’s decision. The more you can put down as a deposit, the less risky the loan is for the lender.

Given the unique circumstances that come with contract work, it can be beneficial to work with a mortgage broker who specialises in contractor mortgages. They can provide advice tailored to your specific situation and help you find a lender that best fits your needs.

How to get a mortgage as a contractor

Getting a mortgage as a contractor in the UK involves several steps. While the overall process is similar to that for any other type of employment, there are a few extra considerations that contractors need to keep in mind:

Understand Your Status: Assess whether you are a self-employed contractor, operate under a limited company (Personal Service Company), work through an umbrella company, or work on a fixed-term contract. The type of contractor you are can influence the mortgage process.

Organise Your Documents: Gather all necessary documentation, including your ID, proof of address, contract history, bank statements, and tax returns. If you operate under a limited company, you may also need your company’s accounts. If you’re an umbrella or agency contractor, your payslips may be required.

Contract Details: Ensure your current contract and contract history are well-documented. Some lenders want to see a track record in contracting with evidence of renewed contracts or sustained income over time. The longer you’ve been contracting and the more continuity you can demonstrate, the better.

Check Your Credit Score: Like any mortgage, a good credit score is important. Make sure you know your score and take steps to improve it if necessary.

Assess Affordability: Understand how much you can afford to borrow. Some lenders calculate this based on your daily contract rate, while others may use your net profit or salary plus dividends if you operate under a limited company.

Save for a Deposit: Generally, you should aim to save between 10% and 25% of the property’s value, but the minimum could be as low as 5% depending on the lender and your financial circumstances.

Get Mortgage Advice: Consider seeking advice from a mortgage broker, particularly one who specialises in contractor mortgages. They can help you find lenders that are comfortable lending to contractors and advise you on how to present your application.

Apply for a Mortgage: Once you’ve chosen a mortgage product and a lender, you can proceed with the application. This will involve a full affordability check and credit assessment.

What documents do I need to get a mortgage as a contractor?

When applying for a contractor mortgage in the UK, you typically need to provide the following documents:

1. Proof of Identity: This could be a passport or driver’s licence.

2. Proof of Address: Documents like utility bills or council tax bills can serve as proof of address.

3. Contract Details: You need to provide a copy of your current contract, showing your day rate and the duration of the contract. This helps lenders to assess your income.

4. Contracting History: Lenders might also want to see evidence of previous contracts to demonstrate a consistent work history. The specifics can vary, but some lenders may require a minimum of 6 months to a year’s history, while others may require up to two years.

5. Bank Statements: Usually, lenders ask for the last three months’ bank statements, but in some cases, they may request up to six months. These statements should show your income from contract work.

6. Tax Returns/Self-Assessment Forms (SA302s): If you’re a long-term contractor, lenders may ask to see a few years’ worth of SA302 forms, which show your annual income.

7. Proof of Deposit: You will need to show that you have the funds available for the deposit. If the deposit is a gift, you may also need a letter from the person gifting you the funds, stating that it is indeed a gift and not a loan.

8. Future Earnings: Some lenders might require evidence of future contract work. This could be in the form of a contract renewal or an upcoming contract.

Please note that these requirements can vary depending on the lender, your contract status, and whether you’re working with a specialist broker. As a result, it’s always a good idea to check with your broker or potential lender about their specific requirements. The earlier you prepare these documents, the smoother the mortgage application process will be.

How much money can I borrow as a contractor?

The amount of money you can borrow as a contractor in the UK for a mortgage can depend on various factors, including your day rate, the duration of your contract, your contracting history, and the lender’s criteria.

Typically, a contractor mortgage lender will calculate your annual income by multiplying your daily rate by the number of days you work in a week, then multiplying that figure by either 46 or 48 weeks (to account for holidays or gaps in work). They then usually offer a mortgage loan that is a multiple of this annualised income.

For example, if you have a daily rate of £300 and work five days a week, this would be calculated as:

£300 (daily rate) x 5 (days per week) x 48 (weeks per year) = £72,000 (annualised income)
Many lenders will then offer between 4 and 5 times this annualised income, depending on other factors such as your credit history and the size of your deposit. Therefore, in this example, you could potentially borrow between £288,000 and £360,000.

However, remember that all mortgage offers are also subject to an affordability assessment. This means the lender will look at your income against your outgoings to ensure you can afford the mortgage repayments, even if interest rates increase.

Each lender will have their own approach to assessing a contractor’s income, so the amount you can borrow may vary significantly from one lender to another. It can be beneficial to work with a mortgage broker who specialises in contractor mortgages, as they can help you find the best deal for your individual circumstances.

It’s also worth noting that while this method of calculation can enable contractors to borrow a sum that reflects their true earning potential, it’s crucial not to overstretch yourself financially. Ensure that you’re comfortable with the repayment amount and that it’s sustainable over the full mortgage term.

How your contract type could affect your application 

The type of contract you have can indeed impact your mortgage application as a contractor in the UK. Different lenders have different criteria, but here are some general ways that your contract type might affect your application:

Fixed-Term Contracts: If you’re on a fixed-term contract, lenders usually want to see at least 6-12 months left on the contract at the time of your application. If your contract is nearing its end, they’ll want evidence of a history of renewals or a good track record in similar contract work.

Zero-Hours Contracts: Zero-hour contracts can make it more challenging to secure a mortgage, as these don’t guarantee a certain amount of work or income. Lenders prefer stability, so they may require a longer work history to demonstrate consistent earnings.

Umbrella Company or Agency Contracts: Contractors working through an umbrella company or agency are often treated differently than direct contractors. In some cases, lenders may calculate your income based on your payslips rather than your day rate.

Limited Company (Personal Service Company) Contracts: If you operate as a limited company, different rules may apply. Lenders could consider your salary and dividends for affordability, or they might consider the company’s retained profits.

IR35: If you’re inside IR35, lenders may calculate your income differently, potentially leading to a lower loan amount. If you’re outside IR35, your gross contract rate will typically be used, potentially leading to a higher loan amount.

It’s important to note that lender policies vary greatly, and these are general guidelines rather than hard-and-fast rules. Each lender will have their own way of assessing income, risk, and affordability. This is why it’s often beneficial to work with a mortgage advisor or broker who understands the unique circumstances of contractors. They can help you navigate the various requirements and find a mortgage that suits your needs.

Which lenders will consider you application? 

As a contractor in the UK, several mortgage lenders may consider your application. While some high-street banks and building societies can be more traditional and prefer applicants with a stable, salaried income, many have adapted their lending criteria to accommodate the growing number of contractors and freelancers in the workforce.

Here are a few types of lenders that often consider contractor mortgages:

Specialist Contractor Mortgage Lenders: Some lenders specialise in contractor mortgages and have a deep understanding of the unique financial circumstances contractors face. They calculate affordability based on contract rates and have a flexible approach to contract history.

High Street Banks: Some high-street banks have special provisions for contractors, but their criteria can be more stringent. They might require a longer contract history or require you to have been contracting for a minimum period of time.

Building Societies: Building societies are known for their more flexible lending criteria. Some of them consider contractor mortgages and can provide more personalised service.

Challenger Banks: Newer, digital-first banks (known as challenger banks) may also consider contractor mortgages. They might have more flexible lending criteria, much like building societies.

What interest rate to expect 

The interest rate you can expect on a contractor mortgage in the UK will depend on various factors, much like a standard mortgage. These factors include:

1. The Lender: Different lenders offer different rates. A specialist contractor mortgage lender may have different rates than a traditional bank or building society.

2. Your Credit Score: Your credit history will significantly affect the interest rate you’re offered. A high credit score generally helps secure a lower interest rate, while a lower score may result in a higher interest rate.

3. The Size of Your Deposit: The more money you can put down as a deposit, the lower your loan-to-value (LTV) ratio will be. Lower LTV ratios generally secure better interest rates.

4. Type of Mortgage Rate: Whether you choose a fixed-rate mortgage, where the interest rate remains the same for a certain period, or a variable rate mortgage, where the interest rate can go up or down, will also affect the rate you get.

5. The Mortgage Term: The length of the mortgage term can also influence the interest rate. Shorter-term mortgages often have lower interest rates than longer-term mortgages.

Contractor-specific mortgages don’t inherently carry higher interest rates than conventional mortgages. If you meet the lender’s criteria, you should have access to the same range of products and rates as someone in a more traditional employment situation.

Typical mortgage interest rates in the UK varied from around 1% to 7%, depending on the factors above. However, rates can fluctuate, so it’s always a good idea to compare current deals or work with a mortgage broker to find the best rate for your situation.

How is a contractor’s income assessed for a mortgage?

A contractor’s income for a mortgage is usually assessed differently than a salaried employee’s income. Traditional mortgage providers base their calculations on a person’s salaried income, but this model doesn’t work for contractors due to their variable income.

Instead, lenders who cater to contractors usually base their calculations on the contractor’s daily rate. They take this rate, multiply it by the number of days worked per week, and then multiply this figure by a set number of weeks per year (usually 46 to 48, to account for holidays or gaps in work).

For example, if a contractor has a daily rate of £400 and works five days a week, the calculation would be as follows:

£400 (daily rate) x 5 (days per week) x 48 (weeks per year) = £96,000 (annualised income)

This annualised income is then used to determine how much the contractor could potentially borrow. Many lenders will offer 4-5 times this annualised income as a maximum mortgage loan, depending on other factors such as credit history, the size of deposit, and the outcome of an affordability assessment.

However, the method used to assess income can vary by lender. Some lenders may also consider factors like:

• The duration of your current contract and how much time is left on it.
• Your contracting history, including the length of time you’ve been a contractor and your track record with contract renewals.
• Your savings and other assets.
• Your credit history.

What are the lending criteria for contractors?

When applying for a mortgage as a contractor in the UK, lenders will typically consider a range of factors. While these can vary by lender, the following are common criteria:

Contract Rate: Your contract rate forms the basis of your income calculation for most contractor-friendly lenders. They will usually multiply your daily rate by the number of days worked per week, then by a set number of weeks in the year (usually 46 to 48 weeks) to arrive at your annualised income.

Duration of Current Contract: Lenders may require that your current contract has a certain amount of time left on it, often 6 months. If your contract has less time remaining, lenders will typically want to see a history of contract renewals or extensions.

Contracting History: Lenders will usually want to see a track record of consistent contract work. Some might require you to have been contracting for at least six months to a year, while others might want two years of contract history.

Future Contract Security: While not always a requirement, evidence of upcoming contracts or a history of easily finding new contracts once a current one ends can work in your favour.

Deposit Size: The size of your deposit will impact your mortgage application. Generally, a larger deposit is viewed favourably by lenders as it reduces their risk.

Credit History: As with any mortgage application, a clean credit history will improve your chances. Missed payments, defaults, or a County Court Judgement (CCJ) can make securing a mortgage more difficult.

Affordability: Even though your contract rate is used to calculate your income, lenders will still perform an affordability check. This means they’ll assess your regular outgoings and commitments against your income to ensure you can afford the mortgage repayments.

What if I’ve recently become self-employed?

If you’ve recently become self-employed and started working as a contractor, you might find it slightly more challenging to secure a mortgage compared to someone with a longer history of contracting. Many lenders prefer to see a track record of consistent income, often looking for a minimum of one to two years of contract history.

However, this doesn’t mean that it’s impossible to get a mortgage. Some lenders do offer mortgages to newly self-employed contractors, but their criteria might be stricter. They might require evidence of future work contracts or a higher deposit. You might also find that you have a smaller choice of lenders and products available.

For newly self-employed contractors, these tips might be useful:

1. Gather Evidence of Future Income: If you can provide evidence of upcoming contracts, it may reassure lenders about your future income stability.

2. Save a Larger Deposit: A larger deposit might increase your chances of approval as it reduces the lender’s risk.

3. Keep Your Financial Records Up-to-Date: Ensure your accounts, tax returns, and invoices are accurate and up-to-date. Having this information readily available can help make the application process smoother.

4. Maintain a Clean Credit History: A good credit score can significantly improve your chances of securing a mortgage, especially if you’re newly self-employed.

5. Consider a Specialist Broker: A mortgage broker who specialises in contractor mortgages can be a valuable resource. They can guide you towards lenders who are more likely to consider your application and may have access to deals that aren’t available on the open market.

6. Check Your Affordability: Be realistic about what you can afford to borrow. Ensure your expected income can comfortably cover your mortgage repayments as well as your other living costs.

Applying for a mortgage on a fixed-term contract

If you’re on a fixed-term contract, you can still apply for a mortgage, but there are specific factors lenders will consider. Here are the key aspects:

Length of the Contract: Lenders typically prefer to see at least six months left on a fixed-term contract at the time of application. This provides them with some assurance of income continuity. If your contract is nearing its end, lenders will want to see evidence of a good track record in similar contract work or a history of contract renewals.

History of Fixed-Term Contracts: A history of successfully renewing contracts or securing new ones in the same field can reassure lenders that you’ll be able to continue meeting your mortgage payments. They often prefer to see at least two years of contract history.

Income: Your income may be calculated based on your day rate or annual contract rate, extrapolated over a year. Some lenders may prefer to see an average of your income over the past two or three years, especially if your income fluctuates significantly.

Nature of Work: The industry you work in and the demand for your skills can influence a lender’s decision. If you’re in a field with high demand, lenders may consider you a lower risk.

What happens if your contract is coming to an end? 

If your contract is coming to an end when you’re applying for a mortgage, this could affect your application, but it doesn’t automatically disqualify you. Lenders understand that the nature of contract work is often project-based and temporary, but they’ll want to see some assurances that you have a reasonable chance of continued income. Here’s how you can manage the situation:

Renewal or New Contract: If you’re renewing your existing contract or have a new contract lined up, provide the details to the lender. This can reassure them that you have a continuing income.

Track Record: If you’ve been a contractor for several years and can show a history of contract renewals or consistently securing new contracts, this may help your application. Lenders like to see evidence that you’ve been able to maintain steady work in your field.

Savings: Having savings in the bank can serve as a buffer during periods between contracts and may reassure lenders that you’re able to manage your finances and keep up with repayments even if there’s a gap in your contract work.

Industry Demand: If you’re in an industry where your skills are in high demand, or if there’s typically plenty of contract work available, this can work in your favour.

What if I have a contract with an umbrella company?

Working under an umbrella company as a contractor can affect your mortgage application process, but that doesn’t mean you can’t secure a mortgage.

When you work under an umbrella company, you become an employee of that company. The umbrella company invoices the client (or agency) you are contracted to, pays you a salary, and handles your tax and National Insurance contributions.

Here’s how this can affect your mortgage application:

Assessing Income: Lenders may treat your income differently than if you were a direct contractor. Instead of using your daily or hourly contract rate, they may use your payslip income (your salary from the umbrella company) to assess your earnings. This can be a disadvantage if you have significant expenses, as umbrella company contractors tend to have lower net pay compared to limited company contractors.

Employment Status: Although you’re working on a contract, under an umbrella company you’re technically an employee. This can be a positive for some lenders, as they may see this as more stable than direct contracting.

Can I get a mortgage if I work through an agency?

Yes, you can still secure a mortgage if you work through an agency, but the process may differ slightly compared to a traditional employee or a direct contractor.

When you work through an agency, lenders will look at your contractual arrangements, consistency of work, and the nature of your employment to assess your eligibility for a mortgage.

If you’re an agency worker, meaning the agency finds you assignments but you’re self-employed or a limited company contractor, lenders will usually assess you as a contractor. If you’re an agency employee, where the agency pays your tax and National Insurance, lenders may assess you as an employee, which might mean different criteria.

Lenders will usually want to see a consistent work history, typically for the last 2-3 years. This doesn’t necessarily need to be with the same agency or in the same role, but it should be in the same line of work.

Contracting in a professional field

Contracting in a professional field like law, medicine, engineering, IT, or finance often comes with its own set of considerations when applying for a mortgage. In general, contractors in these fields might find it easier to secure a mortgage compared to those in less traditional contracting fields, as their skills are often in high demand and their incomes can be quite high.

Contractors in professional fields often have high daily or hourly rates, which can lead to a higher calculated annual income for mortgage purposes. This could potentially allow you to borrow more.

Similar to other types of contractors, lenders will look at the length of your current contract and your history of contract renewals or obtaining new contracts. Longer contracts or a solid history of renewals can work in your favour.

Some lenders have mortgage products specifically for professionals like doctors, lawyers, engineers, and others. These can have advantageous terms, like higher loan-to-income ratios or lower deposit requirements.

How much deposit will I need as a contractor?

The amount of deposit you’ll need as a contractor when applying for a mortgage in the UK largely aligns with the requirements for any other mortgage applicant. Typically, you will need a minimum deposit of 5–10% of the property’s value. 

Your affordability assessment will play a significant role in determining how much you can borrow. If a lender determines that you can afford higher monthly payments, you might be able to secure a mortgage with a smaller deposit.

Different lenders have different criteria when it comes to deposits. Some may be more flexible and require smaller deposits, especially if you have a strong contract history and a high income.

While it’s possible to secure a mortgage with a smaller deposit, a larger deposit can make it easier to get approved for a mortgage and help you secure a lower interest rate. For most contractors, a deposit of around 10–25% is quite common, although this can vary widely based on individual circumstances.

Will I need a bigger mortgage deposit than usual as a contractor?

As a contractor, you will typically not need a larger mortgage deposit than a standard mortgage applicant. The amount of deposit required is often determined by the lender’s risk assessment, loan-to-value (LTV) ratios, your credit score, and your affordability assessment.

However, the requirements can vary from lender to lender, and some may ask for a larger deposit if they see contracting work as higher risk due to its potential for income instability. This is particularly true if you are a new contractor without a long history of contracts or if your income is highly variable.

How do I get a mortgage if I contract under a limited company?

If you’re a contractor operating under a limited company structure, also known as a Personal Service Company (PSC), you can still apply for a mortgage. In this case, lenders will review your company’s financial records to determine your income. Here’s how the process generally works:

Assessing Income: The way lenders assess your income can vary. Some lenders will consider your salary plus dividends as your total income. Others may consider your company’s net profit, particularly if you’re retaining profits within the company. Some may also take into account any money left in the company after you’ve taken your salary and dividends.

Company’s Financial Records: Lenders will need to see your company’s accounts, often for the past two to three years. A certified or chartered accountant should be the one to prepare these. They’ll look at these records to verify your income and assess the company’s financial stability.

Accountant’s Reference: Some lenders may request a reference from your accountant confirming your financial figures and the viability of your business.

Contract History: Just like any other contractor, lenders will want to see a history of contracts and will consider the duration of your current contract.

Credit History and Deposit: As with any mortgage application, a good credit history and a sufficient deposit are also important.

Professional Contractor Mortgages: Some lenders offer specialist contractor mortgages, which are designed specifically for contractors operating under a limited company. These products may use a different method to calculate your income, often based on your contract rate rather than your company accounts. This could potentially allow you to borrow more.

Remortgaging as a contractor

Remortgaging as a contractor is a process that shares many similarities with a standard remortgage, but there can be a few additional considerations due to the nature of contract work:

Purpose: Firstly, consider why you are remortgaging. Are you looking to secure a better rate, release equity for home improvements or another investment, consolidate debts, or change your mortgage term? Identifying your goal will help you find the best deal for your circumstances.

Equity: The amount of equity you have in your property can also impact your remortgaging options. The more equity you have, the lower your loan-to-value ratio will be, which can give you access to better rates.

Existing Mortgage Terms: Be sure to review the terms and conditions of your current mortgage. Some mortgages come with early repayment charges, which could apply if you remortgage before the end of your agreed term.

Declined a mortgage as a contractor : Reasons lenders may decline you

If you’ve been declined a mortgage as a contractor, it can be frustrating, but it’s important not to panic. There are several reasons why this might happen, and understanding these can help you to reassess your situation and improve your chances next time. Here are a few potential reasons and what you can do about them:

Income Fluctuations: If your income varies significantly, some lenders might see this as a risk. In this case, you could look for lenders who are more familiar with contractors or consider how you could stabilise your income before reapplying.

Lack of Contract History: Lenders may be wary if you’re new to contracting or don’t have a consistent history of contracts. If you’ve recently become a contractor, you might want to wait until you have a longer contract history before reapplying.

Short Contract Duration: If your current contract is very short or close to its end, lenders might be concerned about your future income. You may want to consider reapplying once you have a new contract or your current one has been renewed.

Credit History: If you have a poor credit history, this could cause lenders to decline your application. Check your credit report, correct any errors, and take steps to improve your score before reapplying.

Affordability: If the lender determined that you couldn’t afford the mortgage repayments, this could be a reason for the decline. You may need to reassess the amount you’re trying to borrow or save a larger deposit.

Lender’s Criteria: Not all lenders are comfortable with contractor mortgages. It may simply be that the lender you chose was one of these. Try to find lenders who are familiar with contractors, or consider using a mortgage broker who specialises in contractor mortgages.

What should you do if you’ve been declined?

If you’ve been declined a mortgage as a contractor, don’t despair. There are several steps you can take to understand why it happened and to increase your chances of approval in the future:

1. Understand the Reasons: Ask the lender for feedback on why you were declined. It could be due to income instability, a lack of a long-term contract, a poor credit score, or something else entirely.

2. Review Your Credit Report: Get a copy of your credit report and review it carefully. Make sure all the information is correct, and if there are mistakes, get them corrected. If your credit score is low, work on ways to improve it, like paying off outstanding debts, making sure all bills are paid on time, and not applying for too much credit at once.

3. Check Your Affordability: Look at the amount you’re trying to borrow compared to your income. If a lender thinks you can’t afford the repayments, they’ll decline your application. You may need to save a larger deposit or look for a less expensive property.

4. Strengthen Your Contracting Profile: If you’re new to contracting or your contracts have been sporadic, it may be beneficial to wait until you can demonstrate a more stable history. Many lenders like to see at least 12 months of contracting experience.

5. Think about Specialist Lenders: If a high-street bank turned you down, think about going to a specialist lender. Some lenders or building societies have more experience with contractor mortgages and might be more understanding of your circumstances.

6. Seek Professional Advice: Consider working with a mortgage broker, especially one experienced in contractor mortgages. They can help you understand why you were declined and guide you to lenders more likely to approve your application in the future.

Can I get a contractor mortgage with bad credit?

Getting a mortgage as a contractor with bad credit can be challenging, but it’s not impossible. It largely depends on the severity of the credit issues, how long they have been on your record, and how you’ve managed your finances since. Here are a few general points to consider:

Severity of Credit Issues: More severe credit issues like bankruptcy, repossession, or a County Court Judgement (CCJ) can make it harder to secure a mortgage, but it’s not impossible. Less severe issues like missed or late payments may not pose as much of a problem, especially if they are not recent.

Age of Credit Issues: Lenders often care more about recent credit behaviour. If you had issues several years ago but have managed your finances well since, this could be seen more favourably than if you had issues very recently.

Remedial Action: Showing that you have taken steps to resolve your credit issues and manage your finances responsibly can help. This could involve paying off outstanding debts, not missing any further payments, and avoiding taking on additional credit.

Professional Advice: Consider working with a mortgage broker who has experience with both contractor mortgages and bad credit mortgages. They can help you find lenders who are more likely to approve your application.

Can I do buy-to-let as a contractor?

Yes, you can certainly purchase buy-to-let properties as a contractor. Many lenders offer buy-to-let mortgages to contractors, but they may assess your income and the viability of your application somewhat differently than for a standard residential mortgage. Here are a few points to consider:

Rental Income: In the case of a buy-to-let mortgage, lenders will also consider the potential rental income from the property. Typically, they will require the expected rental income to cover at least 125% of the mortgage repayments.

Deposit: Buy-to-let mortgages often require a larger deposit than residential mortgages, commonly 25% of the property’s value, though it can sometimes be as low as 15% or as high as 40%.

Experience: Some lenders may prefer applicants who have previous experience as landlords, though there are lenders who are willing to work with first-time landlords.

Age: Some lenders have age restrictions on buy-to-let mortgages. For example, they might require you to be under a certain age when the mortgage term ends.

Number of Properties: If you already own several buy-to-let properties, some lenders might limit the total number of properties or the total amount borrowed.

Can I get a contractor mortgage on maternity leave?

Getting a mortgage while on maternity leave as a contractor can be more challenging, but it is not impossible. Lenders will want to ensure that you can afford the mortgage repayments, even while your income may be reduced during maternity leave. Here are some factors that may be taken into consideration:

Contract Details: Lenders will typically want to see the details of your current contract. If your contract is still ongoing and you’re expected to return to it after maternity leave, this could help your application.

Maternity Leave Income: Lenders will want to know about your income during maternity leave. If you have statutory or contractual maternity pay or other income, this could also be taken into account.

Return to Work: If you can provide evidence that you’re planning to return to work after your maternity leave, such as a letter from your contractor umbrella company or from your clients, this could support your application.

Savings and Affordability: Having a significant amount of savings could reassure lenders that you can cover your mortgage repayments even with reduced income during your maternity leave.

Partner’s Income: If you are applying for a joint mortgage, your partner’s income will be taken into account, which may help your application if they are not also on maternity or paternity leave.

Financial Planning: A clearly defined plan demonstrating how you will manage your financial commitments during your maternity leave period could also be beneficial.

Professional Advice: Consider consulting a mortgage broker, especially one who specialises in contractor mortgages. They can help guide you to lenders who are more understanding of contractor circumstances and maternity leave.

Can I get a 100% contractor mortgage?

A 100% mortgage is a loan for the entire purchase price of a property, meaning you would not need to put down a deposit.

However, there are some possible ways to secure a 100% mortgage:

Guarantor Mortgages: Some lenders may offer 100% mortgages if a family member or friend is willing to act as a guarantor. This means they agree to cover your mortgage payments if you’re unable to do so. However, this is a significant commitment and comes with risks for the guarantor.

Family Offset Mortgages: Some lenders offer 100% mortgages where a family member places their savings into an account linked to the mortgage. The savings act as a security and can’t be accessed until a certain percentage of the mortgage has been paid off.

Track Record 100% Mortgage: Track record mortgage allows certain borrowers to secure a mortgage without a deposit. It is considered a “non-guarantor mortgage,” meaning it doesn’t require a family member or other party to act as a guarantor for the loan.

However, they are considered risky and are quite rare in the current market. The biggest risk with a 100% mortgage is falling into negative equity, meaning you owe more to your mortgage lender than your property is worth. This can cause issues if you need to move or remortgage, as you could end up trapped in your original mortgage deal, paying a high standard variable rate unless you can find money elsewhere to cover the shortfall.

Should I find a specialist mortgage broker to help me get a contractor mortgage?

Hiring a specialist mortgage broker who is familiar with the nuances of contractor mortgages can be very beneficial for several reasons:

Market Knowledge: A specialist broker will be aware of the contractor market and how lenders typically evaluate contractors. This can help them accurately present your financial situation to the lender in a way that optimises your chances of approval.

Access to Specialist Lenders: Some lenders who specialise in contractor mortgages do not work directly with the public and only provide mortgages through intermediaries. A specialist broker can give you access to these lenders.

Understanding Complex Income Structures: Contractors often have more complex income structures than traditional employees, especially if you operate through a limited company. A specialist broker can help you navigate these complexities and ensure you’re applying for a mortgage based on the maximum amount you can afford.

Time Savings: Applying for a mortgage can be time-consuming, especially when you need to gather various documents to prove your income. A broker can streamline this process for you.

Bespoke Advice: A specialist mortgage broker can provide personalised advice based on your specific circumstances, such as your contract type, how long you’ve been contracting, and whether you have any breaks in your contracts.

Guidance through the Process: A mortgage broker can guide you through the entire mortgage process, from the initial application to completion, making it a smoother and less stressful experience.

Top tips for getting a mortgage as a contractor

Getting a mortgage as a contractor can be slightly more complex than for a permanent employee, but by following these tips, you can increase your chances of success:

1. Keep Your Documentation in Order: Have all your contracts, invoices, bank statements, and tax returns readily available. If you are a limited company director, have a chartered accountant prepare your company’s accounts.

2. Maintain a Good Credit Score: A high credit score can increase your chances of being approved for a mortgage. Pay your bills on time, don’t max out your credit, and regularly check your credit report for errors.

3. Save for a Larger Deposit: The more money you can put down as a deposit, the less risk you pose to the lender. This could increase your chances of being approved and could also get you a better interest rate.

4. Consider Using a Specialist Broker: Brokers who specialise in contractor mortgages can help guide you through the process, potentially saving you time and stress. They can also help you find lenders who are comfortable working with contractors.

5. Ensure Contract Continuity: Try to avoid gaps between contracts and, if possible, secure contract renewals or new contracts before applying for a mortgage. Lenders like to see stability and reliability in income.

6. Avoid Frequently Changing Contract Types: If you frequently switch between being a PAYE employee, an umbrella company contractor, and a limited company contractor, this could confuse lenders. Try to maintain consistency.

7. Declare Your Income Accurately: It can be tempting to declare a lower income to reduce your tax liability, but this could also reduce the amount a lender is willing to lend you.

8. Limit Your Use of Credit: Avoid applying for new credit close to when you’ll be applying for a mortgage. This can temporarily lower your credit score and make lenders nervous.

9. Consider Your Timing: If you’re new to contracting, you may want to wait until you’ve completed at least a year’s worth of contracts before applying for a mortgage. Most lenders prefer to see a track record of successful contracting.