IT Contractor Mortgages

Whether you're contracting as an IT consultant, software engineer or analyst, we'll source the most suitable mortgage deal for your circumstances. Read on to find out more...

Graham Cox - Founder & Cemap Mortgage Advisor |
Graham Cox
Director & CeMAP Mortgage Advisor

We often get approached by IT contractors looking for a mortgage to buy a property, but unsure how much they can borrow. Or even if they'll qualify.

Fortunately, there are many lenders willing to consider IT contractor mortgage applications from consultants, software engineers, analysts and so on. Some can lend even if you're paid in a foreign currency.

After reading this short guide, you'll come away understanding how contractor income is assessed, how much deposit you'll need, maximum borrowing amounts, and much more besides.

How long do I need to have been contracting?

It depends on the lender's eligibility criteria. That said, a requirement for at least 12 months of IT contractor employment on a fixed-term or rolling basis is quite common.

Some banks and building societies require 24 months. However, it doesn't necessarily have to have been with the same employer.

Other Stipulations

Many mortgage providers require:

  • no more than six weeks break between contracts
  • a minimum of 6 months remaining on the contract OR
  • a rolling contract

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

Yes, there are lenders happy to consider applicants starting on their first contract. To qualify, you'll 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 contractor income is assessed depends on whether you're treated as employed or self-employed for mortgage purposes. 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're a company director, 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 you'll be treated as self-employed.

So why does it matter how your income is assessed?

Mainly because 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 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

It may be possible to borrow 5 - 5.5 x income if you're a high-earning contractor. As a guide, you'd need income in excess of £75,000 per annum.

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, many 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 with a 10-20% deposit, as well as lower interest rates.

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

Yes, it's possible to get an IT contractor mortgage even if you're paid in a foreign currency.

Some mortgage providers only accept major currencies like the US dollar or the Euro.  Others consider earnings in a more diverse basket of currencies. For example:

  • US Dollar
  • Euro
  • Canadian Dollar
  • Swiss Franc
  • Chinese Yuan Renminbi
  • Emirati Dirham (UAE)
  • Singapore Dollar
  • Taiwanese Dollar
  • Danish Krone

The dangers of currency fluctuations

With foreign currency earnings, it's understandable to be concerned about the potential for volatile currency fluctuations to negatively affect your income when converted back into sterling.

For example, let's say Tom is an IT analyst working for a Silicon Valley software company. He's paid $12,000 USD a month.

When he takes out the mortgage, the exchange rate is 1.2 USD to 1 GBP, giving him a monthly income of £10000 per month. Comfortably enough to afford the mortgage payments.

But what happens if the UK economy greatly improves and the pound strengthens against the dollar?

At 1.35 USD to the pound, suddenly Tom's income has dropped to £8888 a month. Potentially making his mortgage unaffordable.

How lenders mitigate the risk of adverse currency movements

Here are some methods lenders use to mitigate against the possibility of adverse currency fluctuations when assessing an applicant's foreign currency income:

  • Using the lowest exchange rate for the last two years
  • Using the lower of the exchange rate over the last 5 years OR the exchange rate on the day of application, less 20%.
  • Requiring a guaranteed minimum sterling equivalent income written into the contract
  • Deducting 20% off the applicant's GBP income, once converted from the foreign currency.
  • Reducing the maximum Loan-to-Value (LTV) available

Luckily, not every lender applies a 'haircut' and some will simply apply the spot forex rate on the date of application. Many lenders use for the conversion.

Warning applicants of negative currency movements

That said, every mortgage provider is required to monitor currency fluctuations and warn the mortgagor (the person or persons taking out the mortgage) whenever the exchange rate of the overseas currency falls against the pound by 20% or more.

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What documents do lenders require?

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 lenders will want to see at least 6 months remaining on the contract.

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.

At Self Employed Mortgage Hub, we take care of all that. We quickly scour thousands of mortgage products from a vast range of lenders to find the most suitable deal for your circumstances and needs. Saving you time and potentially a lot of money.

Get in touch today for a no-obligation quote and advice.  We can often help where a generalist broker can't.  Call 0117 205 1695 or make an enquiry online by taking our simple 90 second quiz.

Graham Cox

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 find great mortgage deals.

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