Getting approved for a contractor mortgage may be harder than you think. The type of industry you’re in, the work you do and the security of your job can all affect your likelihood of getting a mortgage.
This guide will provide you with all the information you need on getting a contractor mortgage, and how Barlow Irvin can help you to secure one.
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What is a contractor mortgage?
Contractor mortgages are mortgages available for self-employed individuals working as sole traders, zero-hour contract workers, agency workers and those on fixed-term contracts.
Contract mortgages are available for those working in a wide variety of industries.
Do banks offer mortgages to contractors?
Yes, many high street banks do offer contractor friendly mortgages, so it’s worth shopping around to find the best options for you. Popular banks include:
- Halifax has one of the most flexible mortgages to offer. They provide mortgages for the self-employed, contractors and freelancers, regardless of how they charge for their service, such as per hour or per day.
- HSBC usually requires 2 years of accounts, but they accept applicants who work under limited companies, self-employed individuals and contractors.
- Nationwide will lend to contractors based on their day or hourly rate. They don’t have a minimum income threshold.
- NatWest will consider hourly and day rate contractors, but only those who operate through their own limited company based on their gross contract value.
- Virgin Money does not accept those under umbrella company contractors. They will accept contractors charging by the hour or day and only from those operating through their own limited company.
Some contractor mortgage providers are more lenient than others, so it’s always worth keeping that in mind whilst putting applications in. You may also require the help of specialist mortgage brokers too, as some banks make it more difficult to obtain a contractor mortgage.
At Barlow Irvin, we are experienced in securing specialist mortgages, such as Contractor Mortgages, and can help you to be accepted at the most suitable rate.
If you’d like to know more about working with a mortgage broker, read our article below where we explain what your advisor may ask you
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Contractor mortgage criteria
To be able to get a contractor mortgage, you must fit into one of the contractor categories below:
- Self employed contractors
- Fixed term contractors
- Zero-hours contracts
- Renewable short term contractors
- Umbrella company contractors
- Sub-contractors
- Professional contractors
- Agency workers
The lender's definition of your type of contractor will depend on how you pay your income tax. For example, if you pay via self assessment, you’ll be classed as self employed.
You will also be required to show documents such as bank statements, invoices, SA302 tax calculations and proof of day/hour rate.
Some lenders may also take your daily or hourly earnings to calculate how much you can borrow, whilst others may look at average annual earnings.
How much can I borrow as a contractor?
Mortgage lenders will use their normal affordability calculations for contractors, but the income figure they will use in that calculation will depend on the type of contractor you are and how you are paid.
In some cases, you may be treated as employed, which means that you can use your gross income in the calculations. In other circumstances, you may be treated as self-employed, which means your income will be taken from your tax calculations submitted to HMRC, which may be less due to any business expenses claimed on your accounts or tax return.
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Types of contractor mortgages
To be able to get a contractor mortgage, you must fit into one of the contractor categories below:
- Self employed contractors need to have a contract with a minimum length of six months. They can apply from the first day of their contract.
- Employed fixed term contractors, depending on the length of the current contract, need to show previous work history in contracting positions.
- Zero-hours contractors need at least a 12 months work history within their industry.
- Umbrella company employees and agency workers will need to show at least 12 months of relevant work history.
Remortgaging as a contractor
Being a contractor will not stop you from remortgaging, however, you will have to prepare a few things before you can charge ahead.
You will need to prove your income by providing at least 3 years worth of financial records. You may also be required to show your workflow in order to showcase you have a healthy stream of work coming in over the next year or so.
Finally, you may be required to show a good credit score, which will put you in the right direction of being in favour of lenders.
Speaking to our specialist at Barlow Irvin will put yourself in a great position to remortgage. Our advisors will listen to your personal situation and find the best options for you.
Buy to Let contractor mortgages
A Buy to Let Mortgage is a loan you take for your property and repay back over a long period of time. Many lenders will happily accept contractors for a Buy to Let mortgage, as the focus is more about your aims for the property.
Lenders are most bothered about creating enough income from the property to pay the mortgage back, so you will need to be certain you can attract tenants who will pay enough rent to cover mortgage costs.
Help to Buy contractor mortgages
The Help to Buy mortgage scheme has helped to flatten many hurdles for contractors as it only requires a 5% deposit. The scheme remains the same for contractors and regular first time buyers, and can be broken down into two components:
Equity Loan
With equity loans, borrowers can buy a new build home up to the value of £600,000. The first 20% of the mortgage becomes an interest free loan over a 5 year period.
The remaining 75% is paid as a normal mortgage, which you arrange yourself, or with the use of a broker, with a lender.
Mortgage Guarantee
A mortgage guarantee is more like a regular mortgage, and isn’t restricted to new builds like the equity loan. Borrowers will take out a 5% deposit mortgage, and the chosen lender will send the other 95% out in the form of a mortgage.
The application of help to buy mortgages can be complicated so we recommend contacting our expert team to assist you through the process.
First time buyer contractor mortgages
You may hear that contractors are unable to get a First Time Buyer Mortgage, but this isn’t this case. You will just need additional support to assist you in securing one.
Ideally, you should be putting an extra £1,000 on top of your deposit if you are just sitting on the deposit band. You will also want to ensure you have a good credit score, as well as consistent work history records.
Offshore contractor mortgages
There are specific criteria for contractors working overseas or offshore and very few lenders are prepared to offer mortgages in these cases.
The first step would be to speak to a specialist, such as ourselves, who can obtain the exact details of your circumstances and liaise with lenders to see what mortgages are available.
Contractor mortgages with Barlow Irvin
If you’re a contractor and struggling to find a mortgage, contact our friendly and expert team of mortgage specialists today. We will take the time to understand your unique and individual circumstances, and then help you to find the best possible routes to suit your needs. You can call us on 01204 958 458 or email us at office@barlow-irvin.co.uk
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FAQs about mortgages for contractors
Can I get a contractor mortgage with bad credit?
Yes, you can still get a mortgage with a bad credit score, but it will make getting a contractor mortgage much more difficult.
It’s best to try and correct your credit score before you try and apply for a mortgage. You should start with small steps, such as closing bank accounts and credit cards that you don’t use and ensuring all the information on your credit report is correct.
Once you have started to amend your score, you can contact a broker who will help you to determine a deposit amount.
What interest rates can I expect for a contractor mortgage?
Contractor mortgage rates can be slightly higher than a standard mortgage rate due to the perceived increased risk for the lender. This is not always the case, but should be considered when looking to apply.
What are the best contractor mortgage lenders?
Halifax continues to lead the way with contractor mortgages, bringing competitive and affordable prices for independent professionals. It was the first contractor friendly mortgage lender on the high street, and offers any professional a mortgage by using their gross annualised contract earnings.
Clydesdale bank sets itself apart from other mortgage lenders, as they truly understand the contractor. Their flexible lending criteria suits the market and is adaptable when needed. Even if you aren’t an exact match to their policy, they are willing to listen.
Nationwide acknowledges there are more types of contractors than those who make £300 per day. They don’t punish a modest income, and will simply require proof that you’ve been contracting in the same industry for 12 months.
Is it hard to get a mortgage as a contractor?
It can be difficult to get a mortgage as a contractor, however, having specialist help will make it much easier. The reason why it can be more difficult than a full time employee is because your income is much more likely to be varied.
However, more and more lenders are open to offering mortgages to contractors.