Posted 29 May 2019

If you work as a contractor, two of the main benefits of your job are that you have complete independence and flexible working hours. A small negative however is that your monthly income isn’t always the same, and can fluctuate depending on the amount of work you’ve received from others. As the number of independent contractors in the country rises and with more people turning to the positives of self-employment, lenders are becoming more willing to offer mortgages to them. Here’s how you can boost your chances of getting approved for a contractor mortgage and what you need to know about the application process.

How much can I borrow on a contractor mortgage?

When you first apply for a contractor mortgage, your lender will estimate how much you can realistically afford. You’ll need to provide proof of how much you earn month-to-month, as well as statements of your expenses. Contractors should generally provide a lender with earnings evidence from the last six months, although you should be prepared for some lenders to ask you for up to three years’ worth of accounts.

If you have been working as a contractor for a substantial period of time (more than five years), a lender will calculate your average annual earnings over that period to figure out how much they could lend you (and how much you could afford to repay per month). For example, if you earned £35,000 in one year, but a lesser sum of £30,000 in the second year, a lender will most likely estimate that your annual income is between these two figures (£32,500).

If however your earnings have fluctuated a fair amount from year to year, a lender might exercise more caution and take the lead from the lowest figure you have earned in a year to estimate what you can realistically borrow and afford in terms of repayments. Bear in mind that this might mean borrowing a smaller figure than anticipated.

If you’d like more details on how much you can borrow on a contractor mortgage, talk to our helpful experts at iam mortgages today. Tell us about your freelance business and your earnings and we can recommend the best lender for your circumstances.

I’m a contractor on a daily rate – can I still get a mortgage?

The answer to this question is ‘yes’, generally speaking. You may find that some lenders will be happy to calculate your annual income based on the daily rate that you earn, but some may require evidence of a contract to do so. If a lender chooses to do this, they will take your daily rate and multiply it by the number of days you have worked per week and per year.

For instance, if your income is £300 per day and you work 5 days per week, your estimated annual income will be £69,000 based on the following calculation:

  • £300 x 5 days per week = £1,500
  • £1,500 x 46 weeks worked in a year = £69,000 (annual income)

You will need to inform the lender of any gaps in your earnings that you have experienced due to illness, holiday or periods where you have not received work. Many lenders will assume that you have worked at least 46 weeks per year. If you are a new contractor, you will need to prove to the lender that you will be likely to succeed in your new career, providing evidence such as signed contracts for work.

How to increase your chances of getting a contractor mortgage

A great way to increase your chances of getting a contractor mortgage is to borrow a smaller amount from a lender. This way, you will not be considered as much of a ‘risk’ to them, and they may view you more favourably.

Provide as much evidence as you can to a potential lender that you are a successful contractor with plenty of work in the pipeline. Provide copies of contracts for work that are likely to be renewed or which are forthcoming, and be sure that you do not have lengthy periods (i.e. eight weeks or longer), where you are not working and taking time off, as a lender may not be too keen on this.

It is also worth providing information on your credit score. Ensure that your credit rating is as good as it can be when applying for a contractor mortgage. Pay off debts, credit cards and so on, as this will work in your favour. A lender will want to see that you are good at managing money, especially when you do not have a guaranteed income.

Buying a contractor mortgage with a partner

If you are a contractor and want to take out a mortgage with a partner who is in full-time work, a lender will certainly look more favourably on this compared to an application made on your own, as your partner’s income will provide them with more security regarding repayments. While this takes the pressure off if there are fluctuations in your income, you’ll still need to provide proof that your earnings are consistent and that you are a successful contractor.

Contractor mortgage lenders

There are many high street lenders that will consider you for a contractor mortgage, providing that you can give proof of earnings and continued success in your business. Some lenders however are more strict and use a score-based assessment that mainly favours full-time employment in a permanent position, so you may be offered a small sum of money or your application might be rejected.

It is always worth looking into underwriters who can assess your application for you and take into account the success of your self-employed situation as a contractor. Another option is to approach a lender that specifically caters to offering mortgage deals to contractors.

At iam mortgages, we can examine the mortgage market for you and recommend the right lender for your financial and employment circumstances. If you would like help finding a lender that offers contractor mortgages, get in touch with us today by giving us a call or filling in our online enquiry form.