The Complete Guide To IT Contractor Mortgages

Maximise your borrowing potential using gross day rate income. Read our simple guide to find out if you're eligible.

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Graham Cox
CeMAP Mortgage & CPSP Specialist Finance Advisor

There are many lenders happy to consider IT contractor mortgage applications from consultants, software engineers, analysts and so on. It's even possible to get a mortgage if your IT contract is paid in a foreign currency.

Read on to find out how IT contractor income is assessed, the minimum deposit size required, how the maximum borrowing amount is calculated, and much more besides.

How long do I need to have been contracting?

Every mortgage lender has their own criteria but 12 months of IT contractor employment is quite common.

If you don't have 12 months contracting experience, some providers will consider less, depending on your previous work experience.

As a contractor mortgage broker, we have access to a huge range of mortgage deals, and can place your case with the most suitable lender for your unique circumstances.

Other Stipulations

Many mortgage lenders require:

  • no more than six weeks break between contracts
  • a minimum of 6 months remaining on the contract OR
  • a letter from your employer to state the contract will be extended/renewed.

I'm starting my first contract? Can I get a mortgage?

Yes, there are lenders happy to consider applicants starting on their first contract. Sometimes referred to as day one contractors.

To qualify, you'll usually need to have at least a couple of years permanent employment in the same or a similar role.

How will my IT contractor income be assessed?

How your IT contractor income is assessed depends on whether you're treated as employed or self-employed for the mortgage application. Mortgage lenders consider:

  • How your tax is paid?
  • Whether you employ other IT contractors
  • How much you earn
  • Whether you have more than one contract

Employed vs self-employed for income assessment

If your employer or an umbrella company pays your tax, or you're a high earner (including contractors who are limited company directors), then you're likely to be treated as employed.

If you contract through what lenders call an intermediary such as your own limited company (sometimes referred to as a Personal Services Company), your tax should be paid and up to date.

High earning IT contractors

A high earner is usually defined as a contractor earning around £75,000 p.a. or £400-£500 a day.  As IT contractors are in high demand, some mortgage companies treat IT consultants as employed, regardless of their income, or who pays their tax.

If you employ other contractors, or your limited company has contracts with multiple employers, then it's likely the mortgage lender will treat you as self-employed.

So why does it matter how your income is assessed?

Mainly because to get a mortgage as a contractor it's much easier to evidence your income on an employed basis. The lender will likely just ask for:

  • Your current contract AND
  • Your last 3 months' payslips OR
  • Your last 3 months' invoices and business/personal bank account statements

On the other hand, those assessed as self-employed will need to provide their current contract and some or all of the following:

  • 2 years of limited company accounts
  • Tax calculations or SA302 documents for the last 2 years
  • Tax Year Overview documents for the past 2 years
  • 3 months personal and business bank account statements

Quite the difference!

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How much can an IT contractor borrow?

The standard loan to income (LTI) multiple for contractor mortgages is 4.5 x single or joint earnings. Many providers won't go above 4.5 LTI for contractors.

Borrowing multiples for high earning IT contractors

However if you're a high-earning contractor, with an annual income in excess of £70,000 to 75,000, it may be possible to borrow 5 - 5.5 x income,

Joint applicants typically need to evidence combined earnings of around £100,000 with the contractor's earnings exceeding £75,000 p.a.

How income is calculated for IT contractors on a day-rate

Income assessment is based on 46 working weeks or 230 working days per annum unless the contract states a lower figure.

Borrow using 48 weeks contractor income

Earning £500 per day, an independent IT consultant would have an eligible annual income of £115,000 (500 x 5 x 46). Some mortgage loan companies even allow 48 weeks, which in our example, generates an income of £120,000 p.a.

With £120,000 a year income, an applicant could potentially borrow up to £540,000, subject to an affordability assessment and credit check.

Deducting significant business expenses

Any significant expenses your business incurs may be deducted from your earnings figure, reducing the amount you can borrow.

Significant business expenses might include:

  • The financing of a company car
  • Employee salaries.
  • Ongoing fees like professional indemnity insurance
  • Training programs
  • Recurring software subscriptions

What Loan To Value (LTV) can I get?

Because someone on a fixed-term contract is considered a higher risk borrower than someone in permanent employment, some high street lenders reduce their maximum LTV to the 80-90% range.

That's not to say you can't get a contractor mortgage with just a 5 per cent deposit, but it's definitely tougher.  Many more products are available if you have 10-20% to put down, and you'll be eligible for a lower mortgage rate as well.

Can I get an IT contractor mortgage if I'm paid in a foreign currency?

Yes, absolutely. Many contractor mortgage lenders can consider US dollars, Euros and many other currencies. Our foreign currency contractor mortgage guide has more details.

Book a call back and save your most valuable business asset...time.

"Brilliant from start to finish. Graham managed to find a main high street lender who offered a brilliant rate. Would highly recommend."

Tracy Boyle - Google Business Review
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What documents do lenders require?

To get a mortgage, contractors will need to provide a copy of their current IT contract showing:

  • The contract length is for at least 12 months OR
  • It has already run for that long

Most mortgage lenders require at least 6 months remaining on the contract. But some specialist lenders can accept three months, although they may require a letter from the employer confirming that the contract will be renewed.

The proof of earnings documents required depend on whether you're paid as a sole trader, through an Umbrella company, or into your limited company.

See our mortgage documentation guide for more detail.

What rates & products are available?

Thankfully, most lenders offer IT contractors the same mortgage rates and products as those available to employed applicants.

There are one or two exceptions, who instead offer dedicated product ranges for contractors. Usually with slightly higher interest rates.

As discussed above, some lenders assess contractor mortgage applications using a lower:

  • Loan-To-Value (LTV) and/or
  • Loan-To-Income (LTI) multiple

But that's not always the case.

Mortgage advice for IT contractors

As an IT consultant, software engineer or analyst, navigating complex lending criteria to find the most suitable mortgage deal can be time-consuming and frustrating.

As a specialist contractor mortgage broker, we take care of all that.

We can save you time, hassle and potentially thousands of pounds by finding the most competitive mortgage deal for your circumstances and needs.

Get in touch today for a no-obligation quote and advice.  We can often help where a generalist broker can't.  Call 0117 205 0655 or make an enquiry online by taking our quick quiz.

Graham Cox - MLIBF CeMAP Mortgage Adviser & Director of Hub FS Ltd

About the author

Graham Cox is the founder of Self Employed Mortgage Hub, the trading name of Hub FS Limited.

Based just north of Bristol, SEMH is an independent, whole of market broker and a true specialist in self employed mortgages, helping business owners across the UK get great mortgage and protection deals.

Graham's market commentary and analyis is regularly quoted in the national press and media, including The Guardian, Telegraph, FT Adviser, and BBC Radio Bristol.