Contractors and freelancers enjoy more independence and flexibility but can find getting a mortgage a little more challenging than those in full time, salaried employment. One question many contractors have is ‘how much can I borrow on a contractor mortgage?’

What is a contractor mortgage?

A contractor mortgage is a type of mortgage designed for workers not in a permanent, full-time position. This includes self-employed, fixed-term contractors, agency professionals and zero-hour workers.

Lenders tend to favour those in permanent, full-time employment as they are seen as lower risk, but contractor mortgages do allow those in other types of work to buy property, you just need to find the right type of lender.

Who can apply for a contractor mortgage?

Different lenders will have their own criteria for who qualifies as a ‘contractor’ and many high street lenders won’t offer mortgages to contractors at all. Contractors may be able to borrow from a specialist lender if they meet any of the following criteria:

• A self-employed person working through one main company, such as a tradesperson.
• An agency worker with 12 months of working history.
• An employed person with a fixed-term contract or short-term contract and a history of other contracts.
• Those working with umbrella companies with 12 months of working history.
• Zero-hour contract workers with at least six months of working history.

Contractors can also apply for a mortgage as a self-employed entity if they have been trading long enough and can provide evidence of their trading accounts dating back three years.

How much can you borrow on a contractor mortgage?

Unfortunately, there is no fixed answer to this question. Rather, how much you can borrow depends on a number of factors, such as:

• The length of time you have been contracting.
• How long you worked in your chosen industry before becoming an independent.
• Your payment structure, such as self-employed, limited, director or umbrella company contractor.
• What your day rate is.
• How long you have left on your current contract.
• Whether you have had contracts renewed before.
• What your credit rating is.
• The size of the deposit you are willing to put down.

A specialist mortgage broker will be able to use this information to work out an estimated value of what mortgage lenders will offer.

How do lenders determine the affordability of a contractor?

Contractors will usually need to show evidence of their earning history to determine their affordability for a contractor mortgage and how much they can borrow. This may be as little as the past six months, but often lenders will want to see two to three years’ worth of accounts, from which they will assume an average income.

Some lenders may only lend up to a maximum of three times your annual income, whereas others may lend up to four times or five times your annual income. Some lenders will ignore ‘annual income’ figures altogether and focus solely on a multiple of the contractors’ day rate when it comes to assessing affordability. 

Joint mortgage application with a permanent worker

If you are applying for a joint mortgage with your partner who is a permanent, full-time worker, you may find that more lenders are willing to approve your mortgage application.

To work out your affordability with a partner, work out your own annual rate by multiplying your daily rate by the number of days you work per week, then multiply that number by 48 weeks. Add this figure to your partner’s gross annual earnings. Depending on the lender, you may be able to borrow 3, 4, or 5 times that final figure.

Use a specialist mortgage broker

As a contractor, the most important factor in getting approved for a mortgage is to find the right lender. As many high street lenders are reluctant to offer mortgages to those who aren’t on permanent contracts, you should use a specialist broker to help find the right contractor mortgage for you. This will allow you not only to find the lender most likely to approve you, but also the one who can offer you the best rate.

If you are looking for a mortgage broker to get you the best deal on your contractor mortgage, please get in touch.