Understanding Contractor Mortgages

Securing a mortgage as a contractor or freelancer is entirely feasible, especially as many lenders now base their offers on daily contract rates rather than years of company accounts. This means you could potentially secure a mortgage soon after starting your contracting work.

Lending Criteria for Contractors

Lenders assess various factors to determine the amount they're willing to lend to contractors. They may consider your average income over a specified period or use your lowest yearly income. Additionally, your day rate is crucial in helping lenders gauge your earning potential. They'll multiply your day rate by the number of weeks worked per year, factoring in holidays. Lenders typically prefer to see a consistent working pattern.

Joint Contractor Mortgages

If you're buying a property jointly with someone in traditional employment, their predictable income may strengthen your mortgage application. Both your incomes will be evaluated for joint mortgages, emphasising the importance of demonstrating consistent earnings. Having the employed individual listed first on the mortgage may enhance the application's chances of success.

Determining Borrowing Capacity

Calculating your potential borrowing capacity involves multiplying your day rate by the number of days worked per week and weeks worked per year (typically no more than 48 weeks, considering holidays). While this provides an estimate of your annual income, lenders will also consider the possibility of income fluctuations, potentially resulting in a lower borrowing amount than indicated by online calculators.

Mortgage Deposit for Contractors

Contractors generally don't need a larger deposit than other borrowers. While it's possible to secure a contractor mortgage with a 10% deposit, larger deposits offer access to deals with lower interest rates. Saving a substantial deposit showcases your financial stability and offsets perceived income fluctuations associated with contracting, increasing your appeal to lenders.