Contractor Mortgages

Contractor mortgage broker

If you are working as a contractor and running your own company there may come a time when you are looking for mortgage. When you do this, it does not have to be difficult. What’s more, you will need to obtain the right contractor mortgage advice. Further to this, it is best to speak to a specialist mortgage broker who understands how a contractor works. Regular mortgage advisers and brokers are less well versed in how contracting professionals earn their income and many do not offer mortgage for contractors. Therefore, it is often the case that they are not able to package your income for your mortgage application correctly. Speaking to one of the best specialist mortgage brokers is therefore key when looking for UK contractor mortgages.

Other policies for contractors

Being a contractor in the UK, there are other policies in addition to UK contractor mortgages that are specifically for contractors and may be worth considering and these are:

Contractor mortgages UK

Now, back to mortgages. A specialist contractor mortgage broker will calculate your income by:

  • taking your day or hourly rate, and
  • multiplying this by how many days or hours you work a week

Then, once they calculate your weekly income, they will multiply this by how many weeks you work a year. Usually, this will be between 46 and 48 weeks per year. The resulting figure deemed to be your annual salary.

How much you can borrow for your mortgage depends on your ‘affordability basis.’ In the simplest terms, mortgage lenders will take into consideration your income and your outgoings. As a rough guide, you can look to borrow anywhere from 3 to 5 times your annual gross income.

For example, if your day rate is £500 and you work five days a week, your annual salary will be around £115,000 to £120,000. In turn, this means that you can roughly borrow £345,000 to £600,000. It will depend on how many weeks you work in a year.

The evidence that you need for your mortgage:

Please note, the types of ID that you will need when you apply for a mortgage are:

  • ID
  • Current contract
  • Previous contract
  • A contract extension (if you have less than three months remaining on your contract)
  • Three months of business bank statements

Typically, a mortgage will last around 20 to 25 years. The same will apply with a mortgage for contractors. However, this can vary due to several factors. These include age, retirement plans, and monthly mortgage repayments. When you set up your mortgage, you will decide the term (the length of the mortgage) according to your chosen repayment plan. The longer the term is, the lower the monthly repayment will be.

You can still apply for a mortgage, even if you have just started contracting. There needs to be evidence that you are in the same line of work, and you are in the same industry.

It is key that you get an AIP (agreement in principle) from a mortgage lender before you start house hunting. What’s more, an AIP is based upon a credit search and your income details, and this indicates how much they would lend to you. Although not set in stone, an AIP is a helpful guide and assurance for an agent. To sum up, it helps show that you can afford the property that you are viewing.

The different types of mortgages in the UK:

First-time buyer Mortgage:

If you are a first-time buyer and are looking for UK contractor mortgages, you are in a good position as many Government-backed schemes can help you purchase your first home.

  • Help to Buy ISA. By saving into a Help to Buy ISA, the Government will boost your savings by 25%. The maximum bonus you can receive is £3,000.
  • Help to Buy Equity Loan. By applying for the Equity Loan, the Government will lend you up to 20% of the cost of your newly built home. You will only need a 5% deposit and a 75% mortgage to make up the rest.
  • Shared Ownership. The Shared Ownership scheme is a cross between buying a home and renting. You can own from a quarter to up to three-quarters of a property. As part of this, you will rent the remaining part of the property from the Government at a reduced rate.
  • Right to Buy. A Right to Buy scheme allows tenants who rent their homes from the local council to buy their home at a discount. The size of the discount depends on the area and the property type.

Re-mortgage:

When considering a mortgage, if you are looking to move to another property, or if your current mortgage deal has come to an end, you can consider re-mortgaging. This process is switching onto a new mortgage deal, whether it be with the same provider or a different lender. In doing so, you could save money in the long run. You could also request to borrow more for home improvements.

Buy to Let Mortgage:

Buy to Let mortgages are available for contracting landlords. These will allow them to borrow money to buy properties to let. It is important to note, though, unlike normal mortgages, buy to let mortgages are on an interest-only basis. In turn, this means that for each month of the mortgage term, you will only need to pay interest on the loan. The amount that you have borrowed will have to be paid back at the end of the term. It can be good in the short term as your outgoings will be less each month. It is key, though, that you have a plan in place to pay off the loan or refinance at the end of your mortgage term.

In contrast, with a ‘normal’ mortgage, your monthly repayments will cover the interest and a portion of the debt. As a result, over the mortgage term (and assuming you meet every repayment), the value of the loan will be paid back.

Final thoughts

If you are a contractor and you are looking for a mortgage or further mortgage advice, please feel free to speak to our trusted contractor mortgage broker partner, Broadbench. They are one of the best brokers and a specialist in the area of UK contractor mortgages.

LinkedIn click here

Link to Contractor Advice UK group onFinally, I also have lots of other contractor tips that may be of interest to you.

If you would like to know more about what mortgage you could qualify for, please complete the form below for the contractor UK mortgage broker.

Contractor Mortgages
Mortgage Type

Frequently Asked Questions

Being a contractor in the UK, you may be looking for a mortgage. This may prove difficult if you have less than twelve months’ worth of working history, as most lenders will need you to have been trading in this capacity for at least a year. In fact most will require that you must have at least 12 months of experience in the same line of work and have a contract that lasts for at least 6 months to be eligible for a contractor mortgage.
When you obtain a mortgage for the first time or even a re-mortgage, you will need a mortgage broker / financial advisor. Normal high street mortgage advisors do not tend to be able to offer mortgages for contractors. Therefore, you will need to consult a broker who specialises in contractor mortgages UK.
In general, it will usually take between two to six weeks to get a mortgage approved. The application process will be accelerated if you go through a mortgage broker who can find you the best deals that suit your circumstances. A mortgage offer is usually valid for up to six months.
Most mortgage providers will require a good credit history, before they will consider a loan. In general, you need a good credit score and to have no missed or late payments. The best thing to do is speak to a specialist contractor UK mortgage broker to find out your options.
Contractors do not fit the usual standard criteria for high street lenders. The rates available are the same for all occupation types, however not all lenders offer mortgages for contractors. Therefore, the best thing to do is consult a specialist contractor mortgage broker. They will be able to find the best deals out there for you including some of the best on the market.
Published On: March 18th, 2021 / Categories: Finances, Finances post, Financials, Most Read Articles /

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