As a contractor, one of the first questions you may have when considering a mortgage is, “How much can I borrow?” The answer isn’t straightforward, as various factors such as contract type, income stability, and lender criteria play a crucial role in determining your borrowing potential. This blog will break down the key factors that influence your borrowing capacity and provide practical tips to help you maximise the amount you can borrow. Additionally, using a contractor mortgage affordability calculator can help you determine your borrowing potential based on your income and employment status.
Contractor mortgages are specifically designed for individuals who work on a contract basis, often through their own limited company or via an Umbrella Company. Unlike traditional employees, contractors may not have a fixed income or a conventional employment history, which can make securing a mortgage more challenging. Contractor mortgages take these unique financial situations into account, offering tailored solutions to meet the needs of contractors.
To qualify for a contractor mortgage, lenders typically require a minimum of 2 years of industry experience, a stable income, and a good credit history. Lenders will also consider the contractor’s existing financial commitments, such as loans, credit cards, and other debts. By understanding these requirements, contractors can better prepare themselves for the mortgage application process and increase their chances of approval.
Depending on whether your contract is through your own limited company, an umbrella company or on a fixed term basis could determine how much a lender will lend. Often lenders would reduce the amount of income they’re able to use if you are contracting through an umbrella company as some will deduct the costs associated with the umbrella company from your income, which may reduce how much they can lend. This isn’t the case with all lenders and is something we will assess when looking at your options.
When lending to a contractor, lenders will often pay close attention to how sustainable your income is to establish whether they’re comfortable to lend. One of the main risks when looking at a contractor is that the contract you’re currently on is only going to be in place for a short period of time (in most cases) however the mortgage term will often be over a far longer period. Things that help us overcome questions around stability is a clear proven track record in a particular industry, details of any gaps in contract / employment and the reasons behind this if applicable and also the length of time your contract is in place for. Additionally, your monthly income is a critical factor in determining your borrowing potential.
As with any mortgage, your credit score can have an influence on the lenders decision to lend. Credit scoring will be undertaken at the time of mortgage application, but we will always assess your credit report prior to application to discuss any potential risks or problems prior to the application. If there are issues present on your credit report, this doesn’t mean to say you can’t get a mortgage, it might just mean the interest rate charged is higher if we are having to use a more flexible lender.
Debt to income can influence the lenders decision as with any mortgage application, the more personal debt you have the more risky a lender may view you. Some lenders will have a maximum debt vs income ratio they allow, typically if there is a limit put in place by a lender it will be 50% of your annual income. This is something we can discuss with you from the outset.
Every lender has their own lending criteria that will determine whether they can lend to you or not, this will be different with every lender, some are far more flexible than others. Typically they will have criteria around how long they expect you to have been contracting, how long you have left on the contract, if there have been any gaps in contract and some will have a minimum day / hourly rate they can consider. Lenders also assess maximum mortgage borrowing based on your income and expenses, making it crucial to present a clear financial picture.
When trying to determine how much you can borrow, it’s essential to consider various factors such as your income, employment status, and credit history. For contractors, using a contractor mortgage calculator can help estimate borrowing potential based on daily rates and employment status. Similarly, self-employed individuals can use a self employed mortgage calculator to assess their borrowing potential by inputting specific income details and trading styles.
These calculators provide an interactive platform for users to input their financial information and receive personalised estimates. By understanding the factors that influence borrowing potential, you can make more informed decisions about your mortgage options.
If a lender is able to consider you on their contractor lending policy, they will take an annualised figure of your income normally from your contract rate. A typical calculation could look as follows:
Day / Hourly Rate X Days / Hours worked per week X 46 weeks
Income multipliers will vary depending on lender, deposit amount, income amount and credit score. Some lenders will offer enhanced income multipliers of up to 5.5x your annual household income depending on level of income.
Typically income multipliers will be 4.5x – 5.5x your income, however each lender will conduct a detailed affordability assessment so if there are debts, dependents, other mortgages etc against you it’s likely your borrowing capacity will be impacted.
Ideally we’d say the less debt you have against you the better, but of course it’s not always as straightforward as that! We will typically ask you to run a credit report for us at the research stage, to establish exactly how much debt you have an how this may impact your options.
Need help estimating how much you could borrow? Simply enter a few details about your income and our affordability calculator will give you a basic assessment of your borrowing potential.
Try Our Affordability CalculatorNot all mortgage lenders offer contractor mortgages, and those that do may have different criteria and requirements. Some lenders specialise in contractor mortgages and have a deeper understanding of the contractor market. These specialist lenders often provide more competitive rates and terms compared to mainstream lenders, making them a valuable option for contractors.
When choosing a mortgage lender, contractors should consider several factors. First, evaluate the lender’s experience with contractor mortgages and their understanding of the unique challenges contractors face. Next, review the lender’s criteria and requirements to ensure they align with your financial situation. Finally, compare interest rates and fees to find the most cost-effective option. Working with a contractor mortgage broker who has experience with contractor mortgages can also be beneficial, as they can help navigate the application process and identify the most suitable lender that suits your needs and circumstances.
Experience is key when looking for a contractor lender, the more experience you have in your industry the better and the more likely it is a lender will take a view of you on their contractor policy. Another consideration is to keep gaps in contract to a minimum if possible, we have a number of lenders who will overlook gaps (subject to further information) but some lenders don’t accept gaps of more than 6 weeks in the last 12 months.
Paying back your debts on time is key, avoiding missed payments on any credit accounts will massively help your credit rating and score. We always recommend checking your credit score with a credit reference agency before making any mortgage applications so we have a detailed view of your credit worthiness.
Keeping your debt to a minimum where possible can really help the amount the lenders are willing to lend. They will need to know about any outstanding debts such as personal loans, car finances and credit cards and all of which will be taken into consideration to establish how much you can borrow.
Although there are options in the market with a minimum 5% deposit, not every lender will consider lending 95% loan to value therefore your options are naturally reduced. The bigger the deposit, the lower the risk which increases the chances you have when getting a mortgage.
If necessary we have relationships with a wide panel of lenders which can provide more tailored mortgage options for more complex cases. We will always try and use more mainstream lenders where possible, but specialist options are available should we need them. This is something we’ll establish before making any mortgage application.
Contractors may face several challenges when applying for a mortgage through non-specialist brokers. These challenges can make it more difficult for contractors to secure a mortgage, but there are solutions available to help overcome them.
As a contractor, determining how much you can borrow for a mortgage involves understanding the unique factors that affect your borrowing potential. By knowing what lenders look for and taking steps to improve your financial profile, you can increase your chances of securing a larger mortgage. Remember, preparation is key—start by gathering your financial documents, improving your credit score, and seeking out lenders who understand contractor income. Speak to a member of the team at Connely Roberts Mortgage Services to find out how you can secure your contractor mortgage.
Your home/property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
There may be a fee for mortgage advice. We typically charge a broker fee of £495, however the amount we charge can depend on your individual circumstances.
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