Getting a Mortgage as a Contractor
As a contractor, stepping onto the property ladder might seem a bit daunting at first. You might wonder if lenders will understand your income when you don’t have a permanent employer. The good news is that contractor mortgages are widely available to help professionals like you become homeowners. Whether you’re working on a day rate, a fixed-term contract, or through an umbrella company, being a contractor shouldn’t stop you from buying your dream home.
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What is a contractor mortgage?
A contractor mortgage isn’t a special kind of mortgage with higher rates or extra fees – it’s essentially a standard mortgage adapted to fit a contractor’s work style. Lenders use the term “contractor mortgages” to describe mortgages for people working on contracts rather than in permanent jobs. If you’re not in a traditional full-time job, a contractor mortgage simply means the lender will base the loan on your contract income. They’re willing to consider the earnings from your contract when deciding how much to lend you.
How do lenders assess contractor income?
One of the biggest differences with contractor mortgages is how lenders calculate your income. You might not have a regular monthly payslip. That’s why lenders use other methods to figure out what you earn in a year. The good news is they try to be flexible. In fact, many lenders will consider your full contract value rather than just one month’s pay.
For day-rate contractors, many lenders multiply your daily rate by the number of days you work in a week, then by the number of weeks in a year, to estimate your annual income. They typically assume you’ll work around 46 to 48 weeks of the year (allowing for some off time). For example, a contractor earning £400 per day for five days a week has roughly £92,000 a year in income. Lenders use that figure when assessing what you can afford.
If you’re on a fixed-term contract with an annual or monthly salary, lenders may treat you similarly to a permanent employee. They’ll look at your contract or recent payslips to confirm your earnings. Contractors working through an umbrella company are often assessed using their payslips. This is because the umbrella company technically employs you and deducts tax before paying you. In these situations, a lender might review your last three months of payslips and bank statements, or your P60. They do this to get a picture of your average income.
The main point is that each lender may do things a bit differently, but all will want evidence that your income is sufficient and relatively stable. Make sure to provide all the required documents (contracts, payslips, etc.), and even a summary of your work history if needed. This helps the lender see the full picture of your earnings as a contractor.
How long do I need to be contracting to get a mortgage?
You might be surprised to learn that you don’t always need years of contracting under your belt to get a mortgage. Lender policies vary. In general, the longer and more stable your contracting track record, the easier it is to secure a mortgage. Here are some typical requirements and guidelines lenders look for:
Length of contracting history: Many lenders like to see at least 12 months of contracting history. Some will consider 6 months. A few may even accept applications from “day one” contractors (those just starting out). This is more likely if you have prior experience in the same field.
Current contract length: It helps if your current contract has a few months remaining on it. Lenders often want at least 3–6 months left on your existing contract. If you have less time left, don’t worry. A letter from your employer or agency confirming that an extension is expected can reassure the lender.
Contract renewals: Having had your contract renewed at least once with the same client or company is a plus. It shows that your work is valued and likely to continue. If you’re on your first contract term with a client, don’t worry. It’s not a deal-breaker. However, there might be slightly fewer lenders willing to lend in that scenario.
Gaps between contracts: Consistency is key. Try to avoid long breaks between contracts. Many lenders are okay with short gaps – say only a few weeks off between contracts. Longer gaps might make lenders nervous about your income stability. If you have a longer gap on your CV, just be ready to explain why. You might have taken a planned break to finish a project or for personal reasons. Providing this context can help put the lender’s mind at ease.
Industry experience: A proven track record in your industry can offset a shorter contracting history. You may be new to contracting, but having years of experience in the same field works in your favour. Lenders see that as a positive sign. It shows you have skills and contacts that should keep you employed.
In short, there’s no strict rule that you must be contracting for a specific number of years. If you can show that you’re consistently employed (contract to contract) and have a stable income, you have a good chance of being approved. Some specialist lenders are quite flexible. They might even approve a mortgage for someone who’s only been contracting a few months. (This assumes everything else – like your income, deposit, and credit – checks out.) The key is to present your work history in the best light, so the lender feels confident that contracting is a stable career choice for you.
What documents will I need?
When applying for a contractor mortgage, you’ll need to provide many of the same documents as any other mortgage applicant, plus a few extra items to verify your unique income. Here’s a checklist of what you will typically need:
Proof of ID and address: A valid photo ID (like a passport or UK driving licence) and a proof of address (such as a recent utility bill or bank statement from the last 3 months).
Contract evidence: A copy of your current contract (and possibly previous contracts if you have them). The contract should clearly state your job role, the contract length, and your pay rate. (This could be a daily or hourly rate, or an annual salary equivalent.) Lenders like to see the end date of the contract and any clauses about renewal if applicable.
Income proof: If you’re paid through an umbrella company or agency payroll, provide your latest 3 months’ payslips and possibly your most recent P60. These show the income you’ve been receiving as a contractor. If you invoice clients directly through your own limited company, a lender might want to see evidence of that income. They could ask for business bank statements or copies of invoices to verify you’re consistently getting paid.
Bank statements: Typically, you’ll need to supply the last 3 months of personal bank statements. These help the lender verify the income going into your account and review your regular expenses. If you operate a limited company, you might be asked for recent business account statements as well.
Tax returns or accounts (if applicable): Some lenders might ask for your recent self-assessment tax returns or company accounts (usually covering the past year or two). Many contractor-friendly lenders won’t need these if your current contract is strong, but it’s wise to have them ready just in case.
Work history/CV: Usually not required, but sometimes a lender may ask for a CV or brief summary of your work history. This can demonstrate your experience and show that you’re in demand in your field.
Other standard documents: As with any mortgage, you’ll need to show proof of your deposit and disclose any existing financial commitments (loans, credit cards, etc.). Your mortgage adviser will let you know exactly what’s needed for your situation.
How much can I borrow as a contractor?
When it comes to contractor mortgages, you can typically borrow a similar amount as someone in a permanent job with the same income and financial profile. In general, mortgage lenders cap the loan based on a multiple of your annual income. Most commonly, this is around 4 to 4.5 times your income. Some lenders might stretch to 5 times your income (or even a bit more in special cases) if you have a higher income or a very strong application.
For example, suppose a lender calculates your annual contract income to be £90,000. In that case, a 4.5× income multiple would mean a maximum mortgage of roughly £405,000. If a lender uses a 5× multiple, you might be able to borrow about £450,000.
It’s important to remember that income multiples aren’t the only factor. Lenders will perform an affordability assessment, which looks at your income alongside your expenses and other commitments. They’ll consider things like existing loans, credit card payments, childcare costs, and general living expenses. So even if your income suggests you could borrow, say, £400,000, the lender will check that the monthly repayments on that amount are comfortable for you given your outgoings. If you have significant expenses or debts, it might reduce the amount they’re willing to lend.
Your deposit size also matters. Contractor mortgages are available with as little as a 5% deposit (95% LTV). However, if you can put down more (say 10% or 20%), you’ll likely get a better rate and find lenders more flexible with how much they’ll lend.
In summary, being a contractor doesn’t inherently limit your borrowing power. As long as your income is solid and your finances are in good shape, you should qualify for similar loan amounts as someone in a traditional job with the same income. Working with a broker can help you find the lender most likely to offer the maximum you qualify for. But always remember to borrow an amount that you’re comfortable repaying.
Can I get a contractor mortgage with bad credit?
Having bad credit (things like past missed payments, defaults, or CCJs on your record) can make getting any mortgage trickier, but it doesn’t put home ownership out of reach. The short answer is yes, you can still get a contractor mortgage even if your credit history isn’t perfect. However, you’ll likely need to go through a specialist route, and the terms might not be as favourable as if you had clean credit.
Mainstream high-street banks tend to have the strictest criteria when it comes to credit history. If your credit score is low or you have recent issues (like a default in the last year), many of those lenders might decline your application. But don’t lose hope – there are specialist lenders and even some flexible mainstream lenders who offer contractor mortgages to people with blemished credit. They will look at the overall picture. That includes how serious the issue was, how long ago it happened, and how your finances look now.
Typically, if you have bad credit, you may need to:
Provide a larger deposit: While a 5–10% deposit might work for someone with spotless credit, with adverse credit a lender might ask for 15% or more. A bigger deposit reduces the risk for the lender and can improve your chances of approval.
Pay a higher interest rate: Interest rates will usually be higher to offset the risk. The good news is that if you keep up with your mortgage and improve your credit over time, you can often remortgage to a better deal after a few years.
Demonstrate stability now: Lenders will want to see that your situation has improved. If your credit issues are in the past and you’ve been managing your finances responsibly since, make sure to highlight that. For example, no missed payments in the last year or two, and any debts are under control. Supporting letters or explanations for one-off issues (like a sudden job loss or illness that caused the problem) can also help your case.
Use a mortgage broker: This is highly recommended. An experienced broker can identify which lenders are most likely to accept your application. Instead of applying blindly and risking multiple credit checks, a broker will match you with the right lender from the start.
Remember, bad credit doesn’t last forever. Lenders are most concerned with recent behavior. So if you had some trouble a while back but are now back on track, there’s a good chance you can still secure a mortgage as a contractor. It might take a bit more preparation and the terms could be a bit tighter. However, with the right help and a bit of patience, you can get there.
Ready to take the next step?
If you have more questions about getting a mortgage as a contractor – or if you want tailored advice for your own situation – we’re here to help. Book a fee-free mortgage discovery call with our team today to discuss your needs and find out what options are available.
Your home may be repossessed if you do not keep up repayments on your mortgage.
