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Contractor Mortgages - What you need to know
What is a contractor mortgage?
There are no specific mortgage products for contractors, working as a contractor you can access the same mortgage products on the market that everyone else can. There are however specialist lenders who understand your position as a contractor more and are worth approaching through the help of a mortgage broker.
Whether you work under a PAYE payroll as a contractor or you are self-employed, you will need to prove your income to lenders and need to make sure you have at least a year’s worth of accounts behind you.
How much can I borrow for a contractor mortgage?
The amount that you can borrow for a mortgage will depend greatly on how much you earn annually. If you are a contractor on a day rate, mortgage lenders will multiply out your rate to work out an estimated annual income figure.
As a guide to how much you can borrow, multiply your contract day rate by the days you work per week x 48 weeks. Then multiply the total by five to give the mortgage offer you might expect. This way, a contractor on £400 per day, four days a week, could potentially raise £384,000 in a mortgage.
You will need to provide details of your current contract – lenders often require at least six months left before it ends. They may also want proof that your contracts are all in the same industry or sector.
Lenders will also look into your credit history and will want to see that you can borrow money reliably. Any black marks on your credit file or debts should be settled before approaching a lender in order to access the better rates.
How much of a deposit do I need for a contractor’s mortgage?
Most lenders will expect at least 10% of the property’s purchase price to be put forward as a deposit for your mortgage. If you are a first time buyer you can access schemes such as Help to Buy where you can provide a 5% deposit instead.
As a contractor, it can be advantageous to provide more of a deposit if you can, this can mean lenders are more flexible and can even offer you more exclusive rates.
How is a contractor’s income assessed for a mortgage?
Some contractors work underneath companies and will be getting paid beneath the PAYE payroll, in which case it is easy for lenders to track your income and how much tax you have paid.
Lenders will take your annual incomes and average this out into a base figure to use for your annual income. They will take into account any gaps in contracts and will see fluctuating income in bank statements so keep these minimal.
As a Limited Company Director or a contractor who works through day rate you will need to provide your Tax Calculations and Tax Overviews from HMRC. Lenders sometimes require you to use a chartered accountant to help get your finances in order. A chartered accountant can also help make sure that you are making the most out of tax implications.
Can I get a mortgage if I am on a day rate?
Lenders will take your day rate and multiply it out to work out an annual income figure. You can still access mortgages if you are on a day rate but you will need to provide evidence of your income.
A mortgage broker from The Mortgage Mum can help you gather all of the documentation you will need to approach a lender. It is best to try and keep yourself on longer contracts if you can as lenders will see gaps as a potential risk.
What can I do to improve my chances of getting my contractor mortgage approved?
Providing a larger deposit can help lenders know you are serious about investing in property and can show that you have more revenue up front to provide towards the property in question.
Any previous evidence of work, whether it be contracts or signed agreements, should all be provided. If you have previously had a loan of any kind you can provide this too to show that you are a reliable borrower.
As a contractor, the more proof of work that you have the better. Lenders will work out an average annual income and will also take into account any days off or gaps in contracts. You can approach a lender with only six months worth of contracts behind you but the more that you can provide the better.
How can a mortgage broker at Mortgage Mum help me?
At The Mortgage Mum we have access to a wide range of lenders in the mortgage market and a range of specialist lenders that are waiting to receive your mortgage application. We can help advise on the right lenders for your specific situation by tailoring your mortgage advice and exploring your mortgage options.
Get in touch with us today to start your application process.
Your property may be repossessed if you do not keep up with your mortgage repayments.