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Mortgages for Contractors with Variable Income

Our professional advice about collating variable income evidence, working out the maximum you can borrow, and showing a mortgage lender your annual earnings, even if the totals vary from month to month.

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Mortgages for Contractors with Variable Income

With ever-changing tax rules and conflicting eligibility criteria from lenders, it can be confusing to work out the best way to find a competitive mortgage if you have a variable income!

In this guide, we'll focus on contractor mortgages and how the process works if you earn a living based on day rates.

To help find a contractor mortgage, or compare the rates currently available on the market, give our mortgage advisors a call on 0330 304 3040, or message us at [email protected].

What are Contractor Mortgages, and Who Can Apply?

Contractor mortgages are ideal for self-employed contractors who earn a varied income. That might include:

Self-employed people.
Fixed-term contractors.
Agency staff working through an umbrella company.
Zero hours workers.
Professionals in contractor roles.

Most mortgage lenders define a contractor as someone who works on a fixed or short-term contract or a self-employed person who works for one primary employer.

The eligibility criteria include all the usual factors, such as your credit history, income, and the property you want to mortgage, but will also consider:

Your professional history and contractor experience.
The sector you work in and whether your contract has been previously renewed.
How long is left on your existing contract.

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What Experience Do I Need to Get a Contractor Mortgage?

Typically, lenders will need to see the following experience:

Twelve months of work history for agency workers.
At least six months of work history for applicants on zero hour’s contracts.
Twelve months of work history for employees of umbrella companies.
Some experience (depending on the lender) for fixed or short-term employed contractors.

Most self-employed contractors can get a mortgage from the first day of starting a new contract, provided it runs for at least six months.

Is There a Difference Between Self-Employed Contractor and Subcontractor Mortgages?

If you're a registered self-employed person, you might be a contractor for one primary business or subcontract for multiple clients.

In either scenario, you will usually need a year's worth of accounts or tax returns to apply for a mortgage, although some lenders will accept six months of work history.

Should you start a new contract, provided you have a history in the same sector, and your contract is at least six months long, you can find mortgages from day one, provided your day rate meets the affordability criteria.

Lenders will typically use your net profit for sole traders or partners or salary and dividends for limited company directors to calculate the maximum they can lend.

What are the Eligibility Criteria for Contractor Mortgages?

This all depends on the nature of your work and what sort of contractor you are.

Fixed-term or short-term contractors:

Can usually find a mortgage based on the value of their contracts.
Usually need to have six months of trading history, plus at least six months left to run on their existing contract.

Contractors without renewed contracts:

Will usually need to apply to a niche lender with experience in the sector.
Can often borrow a maximum Loan to Value of 80% or even 90%.

Employees of umbrella contractors:

Usually work through an agency, with an umbrella company deducting tax and National Insurance at the source.
Ideally, should have at least a year’s experience.
Preferable to have a contract with the umbrella company that has been renewed at least once.

Zero hours contractors:

May need a specialist lender depending on experience and the type of work.
Typically require a year's worth of contractor history.
Lenders will want to see evidence that the work will continue.

Agency workers:

Considered a lower risk since agency staff are protected by the Agency Workers Regulations.
Often require at least a year's experience working with the same agency.

Professional contractors:

Includes professionals such as solicitors, accountants and IT contractors.
Less evidence is required of history or contract renewals.
Require proof of their day rate and service history.

How Can I Choose a Specialist Contractor Mortgage Broker?

If you are in any non-standard employment, a whole-of-market broker is the fastest and easiest way to assess the most competitive products on the market and which lenders are most likely to be able to approve your application.

Contractor mortgages are decided on a case-by-case basis, so it is vital to evaluate your circumstances and apply to the right provider for you.

What is the Maximum Mortgage Value for a Contractor?

Lenders use a mortgage calculator, which works on averages of your income to calculate a cap on what sort of loan they can offer.

Usually, this means taking your gross earnings, including bonuses and overtime, and calculating an average income per year.

If you work on a day rate, this means taking that rate and multiplying it by five to estimate your weekly income. Lenders then assume you work 46 - 48 weeks of the year and use that to arrive at an annual income figure they will use for their affordability assessment.

Most lenders times your annual income by four to arrive at a maximum mortgage value, although you can borrow as much as five or even six times if you meet every other eligibility criteria.

For example:

Contractor A earns £300 per day.
Her weekly income is assessed as £1,500 and £72,000 per year based on 48 weeks.
Lender A offers four times income mortgages, so caps their mortgage offer at £288,000.
Lender B offers a higher five times income multiple, so can lend up to £360,000.
Lender C provides generous six times income mortgages and has a cap of £432,000.

What are the Deposit Requirements for a Contractor Mortgage?

A lot depends on how risky your application is. If your contract is stable and the application has no other risk factors, you can usually borrow against a residential property with around a 10% deposit.

You might need a larger deposit of 15% or 20% of the purchase value for higher-risk applications.

Are There Contractor Mortgages for Shared Ownership?

Yes, one option to get onto the property ladder is to consider a shared ownership property. Under this scheme, you buy a proportion of a home from a housing association or developer and pay them to rent the share they own.

This scheme is designed to make it affordable for more people to purchase their own property, and most applicants can buy from 25% to 75% of the home, financed through a mortgage.

Contractors can apply for shared ownership but will almost certainly need a broker to negotiate the terms and deal with the intricacies of the paperwork.

Can I Get a Contractor Offset Mortgage?

Yes, offset mortgages are a popular option for contractors who have savings since this can reduce your interest costs.

Offset mortgages balance your savings against the balance owing and only charge interest on the difference.

The key benefit is that, for many contractors, their income fluctuates from one month to the next. An offset mortgage's flexibility means that it is a more flexible product, allowing you to repay more in some months.

Can I Get a Buy to Let Mortgage as a Contractor?

You certainly can. Most buy to let mortgages are more concerned with the rental income and how easily this covers the mortgage costs than with your employment status.

Usually, the rent will need to cover between 125% and 145% of the interest-only mortgage cost.

What are the Eligibility Requirements for a Contractor Mortgage?

Terms and requirements vary significantly between lenders. Some of the standard criteria include:

Age limits - some lenders will only consider contractors aged over 25. Others place an upper age limit of 75 or 85, although others have no age restrictions.
Bad credit - every lender will need to run a credit check. If there are severe credit issues, you may need to consult a specialist bad credit lender through a whole-of-market broker.
Mortgage types - most contractor mortgages are on a repayment basis, and interest-only is less common.

How Can I Get a Mortgage as a Contractor?

The process itself is relatively simple, although it is vital to consult an independent broker who can work through each stage with you.

First, think about what sort of mortgage you need. It's also wise to have a look at your credit report at this stage to query any discrepancies.
Next, contact the Revolution Brokers team. Don't worry if you're not sure which mortgage is right for you - we can always make recommendations.
Our team will consult to establish your circumstances, what you need to borrow, and which lenders are most suitable.
Then we'll discuss either making an initial enquiry or proceeding with a full application if you're keen to go ahead.
Once the full application is submitted, we'll work with you to collate all the paperwork and documents required and arrange the valuation.
When the lender has everything they need, they will send over a formal offer to lend.
After that, it's a case of passing the documents over to the solicitors to formalise the paperwork, and then you're good to go!

What Mortgage Fees are Payable on Contractor Borrowing?

Fees are always worth considering and usually include:

Arrangement or booking fees with the lender.
Valuation and survey costs on the property.
Stamp Duty and Land Registry charges.
Conveyancing (legal) fees.

These charges vary between lenders and products, and the Revolution Brokers team always runs through the costs with you to ensure these are acceptable before you proceed.

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As specialist mortgage brokers for a huge variety of applicants, the whole-of-market consultants at Revolution provide access to an exceptional range of lenders, products and mortgage deals. That means you get the advantage of professional negotiation and broker-exclusives through an established lending network to ensure we always find you the most competitive mortgage available.

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Revolution Mortgage Brokers understands that mortgages can be complex and confusing! Ask us any question you might have, and one of our skilled consultants will come back to you as quickly as possible.

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Mortgages for Contractors with Variable Income

Mortgages for Contractors with Variable Income

What are Contractor Mortgages, and Who Can Apply?

What Experience Do I Need to Get a Contractor Mortgage?

Is There a Difference Between Self-Employed Contractor and Subcontractor Mortgages?

What are the Eligibility Criteria for Contractor Mortgages?

How Can I Choose a Specialist Contractor Mortgage Broker?