How many times have you thought ‘can I get a mortgage as a contractor’? The good news is it is indeed possible, and in this guide, Cleerly will provide you with valuable insights on how to navigate the process successfully. From understanding the requirements if you need a mortgage now, to tips on improving your chances in the near future when you are ready to apply, we’ll help demystify the path to a successful contractor mortgage. Let's delve into the specifics of obtaining a mortgage tailored to your unique way of working.
Can I get a mortgage if I am a contractor?
Contractors may face several challenges when applying for a mortgage directly with a bank or via a non-specialist broker. Due to the often-flawed perception of risk by mortgage lenders, contractors will be deemed a riskier case than a regular employee. One common difficulty is proving all earningsto a bank, especially if income is short-term, or is not as easily provable via conventional means, like payslips.
Another challenge contractors face is their potentially lower taxable income and perceived lack of longevity compared to salaried employees. Getting a mortgage as a contractor can lead to challenges in meeting the strict income verification requirements set by banks.
Additionally, contractors with low taxable income may find it harder to qualify for a mortgage based on modern-day affordability rules, as lenders typically rely on taxable income for assessing affordability. It is important for contractors to prepare thorough documentation and work with specialised advisers who understand their unique financial situation when seeking a mortgage.
What is a contractor mortgage?
A ‘is not a distinct mortgage product that carries different rates and fees to a regular mortgage. It’s simply a term used to describe a mortgage tailored for individuals working on a contract basis. While the product is the same, the application process for a contractor mortgage may differ due to the nature of their employment.
Lenders typically define contractors as individuals who work on fixed-term contracts, whether that’s employed or self-employed. To secure a contractor mortgage, applicants may be required to provide different documentation compared to traditional employees, such as contracts, an up-to-date CV, and evidence of consistent work with minimal breaks in the past.
The good news is that there are more lenders who are willing to consider contractor income, as long as the application is presented to them correctly, so getting a mortgage as a contractor shouldn’t be difficult. Cleerly are here to interpret the nuances of contractor mortgages and how lenders assess them, and can help contractors navigate the application process more effectively to secure competitive financing for their home.
How do contractor mortgages work?
Contractor mortgages work in a similar way to regular mortgages but are specifically designed to accommodate the unique financial circumstances of contractors. Unlike traditional mortgages that rely on stable and predictable income, contractor mortgages take into account fluctuating and multiple income streams that contracting professionals often have.many
Daily and hourly contract rates can be used as part of the income assessment for contractor mortgages, allowing lenders to better assess the financial situation of contractors. These types of mortgages cater for individuals who don’t have a permanent monthly salary, but still have the means to afford a mortgage based on their gross contract income.
Essentially, the defining of taxable income via payslips or trading accounts are substituted by using the contract rate instead. This gross contract earnings are typically multiplied over 46 or 48 weeks to obtain the annual income for a mortgage application, as long as the lender is satisfied that the contract income is regular and sustainable.
How to get a contractor mortgage?
Many contracting professionals ask us ‘can I get a mortgage as a contractor’? The answer is yes you can, but engaging a specialist mortgage broker is crucial when seeking a contractor mortgage. A contractor-specialist mortgage broker will have the expertise and experience to navigate the complexities of contractor mortgages, ensuring you find the best deal tailored to your unique circumstances. An independent broker should also have market access, giving contractors the best chance of securing the most competitive mortgage. The steps we cover will prepare you for a successful mortgage application when you need it, and remove a lot of uncertainty about whether you get the money.
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Source an independent and reputable contractor mortgage broker early on in the process.
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This is a very important first step which will save time and effort.
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Source the best lender.
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Eligibility criteria for a contractor mortgages typically involves demonstrating a consistent income stream, often over a specified period. Lenders may also assess factors such as contract length, industry experience, and future earning potential. Your broker will do this for you.
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Prepare your documents.
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When applying for a contractor mortgage, be prepared to provide essential documents such as proof of income (e.g., contracts), an up-to-date CV, identification documents, bank statements, and details of any existing financial commitments.
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Manage your finances appropriately.
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To maximise chances of acceptance for a contractor mortgage, accurate financial records should be kept that show personal solvency. Lenders will typically focus on the latest three months bank statements for all active accounts. It is also important to ensure the credit score is healthy, which is usually scrutinised over a three-year period rather than three months for bank statements.
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Engage professionals other than your mortgage broker.
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For self-employed contractors, it is advisable to work with an accountant so any information about tax is readily available. Likewise, if using an umbrella company, you will need payslips and potentially a P60.
Can first-time buyer contractors get a mortgage?
For first-time buyer contractors, obtaining a mortgage can be a feasible option, although the process may not always be straightforward. The perception of banks is that that contractors pose a higher risk, along with first-time buyers having no mortgage history.
Due to this, contractors looking to secure a first-time buyer mortgage may encounter challenges in proving sustainable income and meeting lender requirements. However, with careful preparation, it is possible to navigate through the application process successfully. Seek assistance from a specialist contractor mortgage broker early on to avoid any stressful issues later in the process.