When we speak to contractors, many are unsure about the mortgage options available to them, how much they can borrow, and how long they need to be trading for.
This guide answers those questions, and many more. You'll also come away with a much better understanding of the current mortgage market for contractors.
- What's the definition of a contractor for mortgage purposes?
- Will I be considered self-employed or employed by mortgage lenders?
- How long do I need to be a contractor for?
- How much can a contractor borrow?
- I'm on a zero-hours contract, can I get a mortgage?
- What's the maximum available loan-to-value?
- How do lenders assess affordability for contractors?
- Can I get a mortgage if I have bad credit?
- What proof of income will I need?
- Getting a contractor mortgage quote
What's the definition of a contractor for mortgage purposes?
Mortgage lenders will consider a borrower a contractor if they meet both these criteria:
- They are not permanently employed
- Their income comes from a fixed-term or temporary contract, usually from one employer at a time.
Will I be considered self-employed or employed for mortgage purposes?
It depends. For income verification purposes, a lender can treat a contract worker as self-employed or employed, depending upon circumstances.
Each lender has their own criteria for which employment status they apply.
One common example, is someone working as a sub-contractor under the Construction Industry Scheme (CIS), and who has income tax and NI deducted at source by an Umbrella company. Even though they are a sole trader, they may well be treated as a PAYE employee for lending purposes.
On the other hand, an IT contractor who receives income into a Limited company, and pays their own income tax and national insurance, will normally be considered self-employed. One possible exception, is where the contractor is on a high daily rate, typically £500 a day or more.
How long do I need to be a contractor for?
Again, every lender is different. But regardless of whether you are classed as a self-employed or employed contractor, mortgage providers will typically want to see:
- A minimum 12 months history of contracting.
- Your current contract has at least 3 months to run, or is a minimum 3 months in duration. Some lenders will require 6 months.
- Evidence your current contract is being renewed, or that you have a new contract lined up.
- If your current contract has less than 3-6 months to run. Some lenders require evidence you've already been able to renew your contract at least once.
- Less than 6 weeks gap between contracts in the past year.
- A track record of at least 2 years service n the same line of work/industry. Some lenders require 3 years.