Contractor Mortgages
Mortgages based on hourly/daily rate, we are experts with over 10+ years experience working with contractors.
To be approved for a contractor mortgage with mortgage lenders, a contractor needs to meet the following criteria:
The simple answer is yes when you’re speaking with the right experienced broker.
Not every lender will offer a contractor mortgage and some lenders will simply not be able to lend due to not having a structure in place to account for or process the income arrangement.
For many years it’s been a myth that contractors need to supply 2 years company accounts and will struggle to get a mortgage if this is not supplied. However, this is not always the case, it’s best to speak to a mortgage broker or us at Connely Roberts Mortgages Services who can advise based on your circumstances. Learn more about contractor friendly mortgages in our how to get a mortgage as a contractor blog.
Instead, speaking with the right broker will help to position your income in the correct way, usually by annualising the contract rate to an equivalent salary – almost if you were permanently employed. This is referred to as an annualised contract rate.
The impact of IR35 is that most lenders will no longer use the gross day rate, as they need to account for the umbrella costs vs being outside of IR35 while trading through a ltd company meaning, lenders will now use the full day rate. While a few lenders may still work with the gross rate it’s not many. The only real difference is that this can then impact the potential loan size a lender can offer.
IR35 is a UK tax law which closes a loophole in the tax system where workers could pay less tax by setting up a limited company (or partnership) than they would if employed.
Some of the criteria used to decide if someone is ‘inside’ (i.e. employed for tax purposes) or ‘outside’ IR35 (self-employed for tax purposes) are common sense; if you act like and are treated like an employee you should be taxed as one. But there are a lot of grey areas in the legislation and some points which may seem small can have a big impact. So always best to consult an expert before making any decisions on your IR35 status.
As of 6th April 2021 the new off-payroll working rules are in place. This means the IR35 determination process has changed for those engaged to a medium or large client in the private sector. This has been in place for the public sector since 2017.
You can simply use the Gov.UK employment status tool to determine whether you’ll fall under IR35 as a contractor. However, more often than not, the client will determine the position.
The types of mortgage products available are the same as any other type of applicant. These include:
Contractors are not penalised for the way they are paid; it’s just not every lender offers this type of mortgage.
There are additional criteria that lenders look at when assessing a mortgage for a contractor. This is due to contractors being viewed as higher risk due to working on a contract basis that are generally short term.
Contractor friendly lenders will often look at:
Once these criteria are met, underwriters may also take into consideration further factors that will determine their final mortgage offer including:
To apply for a mortgage loan as a contractor, it’s crucial to position your income correctly. Since some contractors work through their own limited company, certain lenders or brokers may classify them as “self-employed.” This means they may require two years’ worth of accounts and average the taxable earnings (salary and dividends).
While this approach may be effective in certain instances, it can often be challenging to secure the desired mortgage amount since the income drawn from a limited company is typically low for tax efficiency reasons. While this is beneficial for reducing tax bills, it can make it difficult to obtain a first mortgage.
One alternative to this is to use the Contract Rate to demonstrate the gross annual income, which provides a more accurate representation of the contractor’s yearly earnings. To achieve this, the contract rate is annualized over a period of typically 46 or 48 weeks (to account for holidays and days off) depending on the lender’s requirements. This approach should enable contractors to secure a larger borrowing amount.
The same applies to umbrella contractors, as the number of people working via umbrella companies has risen since the implementation of IR35 in April 2021. It’s common for contractors to assume that because they receive payslips that show a gross income each week or month, they would be classified as PAYE applicants. However, most lenders do not consider them as such. This is due to the fact that umbrella payslips frequently reflect a small salary, with the majority of the income being shown as additional income (such as bonuses or commissions), which can create difficulties when attempting to demonstrate income to a lender.
Proving income as an umbrella contractor is similar to proving income as a Limited company contractor, as the application still requires a contract to verify income. However, the key difference is that most lenders now request payslips in addition to the contract, which they typically use to calculate the gross pay. Lenders often apply a deduction of around 11-14% from the gross income to account for the umbrella company’s costs and employers’ NI, which is often visible. However, not all lenders use this method, and some rely solely on the contract rate. If the lender intends to deduct a percentage from the gross annualized amount, they will follow the same calculation method as for limited company contractors, i.e., dividing the weekly pay by the number of weeks in a 46 or 48 week year.
During a mortgage application, all applicants must provide:
Depending on whether the contractor operates via a Limited Company or Umbrella company the documents required will differ:
LTD
Umbrella
Contractor specialist lenders typically have different contractor mortgage criteria regarding gaps in contracts and the length of time they will accept. As contracting often involves shorter assignments of 3, 6, or 12 months, it is crucial for many lenders to ensure that income will be sustainable. The easiest way for lenders to do this is by reviewing the contracting history.
As a standard, most lenders will allow a maximum of 4-6 weeks of gaps in the 12 months preceding the application. However, some lenders are more flexible with gaps depending on their duration and cause. We’re often able to overcome gaps providing there is a strong track record of contracting and a new contract in place moving forward.
Many large high street lenders have provisions in their lending criteria that allow contractors to apply for a mortgage based on their contract rate instead of their taxable earnings. This is true for many well-known high street banks. However, even though many lenders now offer mortgages to contractors, it can be challenging to navigate the process without assistance. This is why having a specialised mortgage broker can be invaluable. Applying directly to the lender may result in an incorrect assessment of your income, which can limit your borrowing ability. This is mainly due to the lack of familiarity of high street bank advisers with contractor income, as they don’t have the same level of expertise as a specialist.
Many contractors often ask whether they will be subjected to higher interest rates due to their short-term employment status. However, this assumption is incorrect as contractors have access to the same interest rates as anyone else, and their working pattern doesn’t affect this. However, it’s important to note that not all lenders offer mortgages based on the contract rate, which can reduce the available options for contractors.
With nearly a decade of experience, we’re experienced mortgage brokers who have worked with contractors from various backgrounds and industries. Our journey began at the UK’s largest contractor mortgage specialist, where we gained invaluable expertise before embarking on our own journey. Our mission is to help contractors secure the mortgage they deserve, and we strive to make the application process as stress-free as possible.
If you need further information about applying for a mortgage as a contractor, visit our contractor mortgages page, or feel free to contact us to learn more about how we can help with your specific needs.
Your property may be repossessed if you do not keep up repayments on your mortgage.
We typically charge a broker fee of £495, however the amount we charge can depend on your individual circumstances.
Want to see if you can get a mortgage? Simply provide some details about your income, and our affordability calculator will give you an estimated idea of whether you can afford a mortgage. For a precise borrowing amount tailored to your situation, it’s highly recommended that you consult with one of our experienced mortgage advisers.
Try our Affordability CalculatorThe simple answer is yes when you’re speaking with the right experienced broker.
Not every lender will offer a contractor mortgage and some lenders will simply not be able to lend due to not having a structure in place to account for or process the income arrangement.
For many years it’s been a myth that contractors need to supply 2 years company accounts and will struggle to get a mortgage if this is not supplied. However, this is not always the case, it’s best to speak to a mortgage broker or us at Connely Roberts Mortgages Services who can advise based on your circumstances. Learn more about contractor friendly mortgages in our how to get a mortgage as a contractor blog.
Instead, speaking with the right broker will help to position your income in the correct way, usually by annualising the contract rate to an equivalent salary – almost if you were permanently employed. This is referred to as an annualised contract rate.
The impact of IR35 is that most lenders will no longer use the gross day rate, as they need to account for the umbrella costs vs being outside of IR35 while trading through a ltd company meaning, lenders will now use the full day rate. While a few lenders may still work with the gross rate it’s not many. The only real difference is that this can then impact the potential loan size a lender can offer.
IR35 is a UK tax law which closes a loophole in the tax system where workers could pay less tax by setting up a limited company (or partnership) than they would if employed.
Some of the criteria used to decide if someone is ‘inside’ (i.e. employed for tax purposes) or ‘outside’ IR35 (self-employed for tax purposes) are common sense; if you act like and are treated like an employee you should be taxed as one. But there are a lot of grey areas in the legislation and some points which may seem small can have a big impact. So always best to consult an expert before making any decisions on your IR35 status.
As of 6th April 2021 the new off-payroll working rules are in place. This means the IR35 determination process has changed for those engaged to a medium or large client in the private sector. This has been in place for the public sector since 2017.
You can simply use the Gov.UK employment status tool to determine whether you’ll fall under IR35 as a contractor. However, more often than not, the client will determine the position.
The types of mortgage products available are the same as any other type of applicant. These include:
Contractors are not penalised for the way they are paid; it’s just not every lender offers this type of mortgage.
There are additional criteria that lenders look at when assessing a mortgage for a contractor. This is due to contractors being viewed as higher risk due to working on a contract basis that are generally short term.
Contractor friendly lenders will often look at:
Once these criteria are met, underwriters may also take into consideration further factors that will determine their final mortgage offer including:
To apply for a mortgage loan as a contractor, it’s crucial to position your income correctly. Since some contractors work through their own limited company, certain lenders or brokers may classify them as “self-employed.” This means they may require two years’ worth of accounts and average the taxable earnings (salary and dividends).
While this approach may be effective in certain instances, it can often be challenging to secure the desired mortgage amount since the income drawn from a limited company is typically low for tax efficiency reasons. While this is beneficial for reducing tax bills, it can make it difficult to obtain a first mortgage.
One alternative to this is to use the Contract Rate to demonstrate the gross annual income, which provides a more accurate representation of the contractor’s yearly earnings. To achieve this, the contract rate is annualized over a period of typically 46 or 48 weeks (to account for holidays and days off) depending on the lender’s requirements. This approach should enable contractors to secure a larger borrowing amount.
The same applies to umbrella contractors, as the number of people working via umbrella companies has risen since the implementation of IR35 in April 2021. It’s common for contractors to assume that because they receive payslips that show a gross income each week or month, they would be classified as PAYE applicants. However, most lenders do not consider them as such. This is due to the fact that umbrella payslips frequently reflect a small salary, with the majority of the income being shown as additional income (such as bonuses or commissions), which can create difficulties when attempting to demonstrate income to a lender.
Proving income as an umbrella contractor is similar to proving income as a Limited company contractor, as the application still requires a contract to verify income. However, the key difference is that most lenders now request payslips in addition to the contract, which they typically use to calculate the gross pay. Lenders often apply a deduction of around 11-14% from the gross income to account for the umbrella company’s costs and employers’ NI, which is often visible. However, not all lenders use this method, and some rely solely on the contract rate. If the lender intends to deduct a percentage from the gross annualized amount, they will follow the same calculation method as for limited company contractors, i.e., dividing the weekly pay by the number of weeks in a 46 or 48 week year.
During a mortgage application, all applicants must provide:
Depending on whether the contractor operates via a Limited Company or Umbrella company the documents required will differ:
LTD
Umbrella
Contractor specialist lenders typically have different contractor mortgage criteria regarding gaps in contracts and the length of time they will accept. As contracting often involves shorter assignments of 3, 6, or 12 months, it is crucial for many lenders to ensure that income will be sustainable. The easiest way for lenders to do this is by reviewing the contracting history.
As a standard, most lenders will allow a maximum of 4-6 weeks of gaps in the 12 months preceding the application. However, some lenders are more flexible with gaps depending on their duration and cause. We’re often able to overcome gaps providing there is a strong track record of contracting and a new contract in place moving forward.
Many large high street lenders have provisions in their lending criteria that allow contractors to apply for a mortgage based on their contract rate instead of their taxable earnings. This is true for many well-known high street banks. However, even though many lenders now offer mortgages to contractors, it can be challenging to navigate the process without assistance. This is why having a specialised mortgage broker can be invaluable. Applying directly to the lender may result in an incorrect assessment of your income, which can limit your borrowing ability. This is mainly due to the lack of familiarity of high street bank advisers with contractor income, as they don’t have the same level of expertise as a specialist.
Many contractors often ask whether they will be subjected to higher interest rates due to their short-term employment status. However, this assumption is incorrect as contractors have access to the same interest rates as anyone else, and their working pattern doesn’t affect this. However, it’s important to note that not all lenders offer mortgages based on the contract rate, which can reduce the available options for contractors.
With nearly a decade of experience, we’re experienced mortgage brokers who have worked with contractors from various backgrounds and industries. Our journey began at the UK’s largest contractor mortgage specialist, where we gained invaluable expertise before embarking on our own journey. Our mission is to help contractors secure the mortgage they deserve, and we strive to make the application process as stress-free as possible.
If you need further information about applying for a mortgage as a contractor, visit our contractor mortgages page, or feel free to contact us to learn more about how we can help with your specific needs.
Your property may be repossessed if you do not keep up repayments on your mortgage.
We typically charge a broker fee of £495, however the amount we charge can depend on your individual circumstances.
Mortgages based on hourly/daily rate, we are experts with over 10+ years experience working with contractors.
We are here to help you take your first step onto the property ladder, with deposit options as low as 5%.
Is your remortgage due soon? We have access to over 100 lenders and have access to thousands of mortgage products.
We offer a range of Buy to Let mortgages to new and existing landlords, including HMO and Limited Company applications.