What is a Contractor Mortgage?
A contractor mortgage is required for individuals who are working under a contract that is not permanent.
Contract workers fall under a number of different definitions such as, fixed-term contractors, self-employed individuals, umbrella company employees, zero-hour contract workers and agency staff.
Lending criteria surrounding these types of contracts can differ significantly from one lender to the next. For this reason, contract workers can often be turned down by many lenders, as they are seen as more high risk than those who are working in a permanent position.
Lenders will take into account the following criteria when deciding whether you’re a suitable borrower for a mortgage…
- What type of contractor you are
- Length of time you have been contracting for
- Length of time you have worked in that industry
- Have had previous contracts renewed before
- Length of time remaining on your current contract
Types of Mortgages available for Contractors?
Self-employed contractor and sub-contractor mortgages
Individuals registered as self-employed with HM Revenue and Customs (HMRC) who pay their own tax and National Insurance contributions are classed as self-employed, income can be declared via self-assessment or via an accountant. Self-employed contractors may be sub-contracting for one or multiple companies.
Obtaining a mortgage as a self-employed contractor or sub-contractor may prove tricky if you have been trading in this capacity for less than a year. There are a small amount of lenders who may accept you with six months or even on day one of a new contract (with lending based on a multiple of your day rate), as long as it is for at least six months and you have history of working in this capacity.
When deciding on who to offer a mortgage to, Lenders often assess sole traders and Partnerships on the income that they declare as net profit or on their salary and dividends if a Limited company director.
Mortgages for fixed/short term contractors
Those on fixed or short term contracts typically find it easier to obtain a mortgage as a contractor than others who work in this way. Generally borrowers are required to have been trading for at least six months with a further six months remaining on their current contract.
Lenders take a more positive view on borrowers who have been trading for longer and have had their contract renewed at least once before as they are more likely to see your income as being more stable.
Mortgages for Umbrella contractors
Many lenders turn away borrowers who are employed in this way as they are unable to understand the sustainability of their income, there are certain lenders who will cater to a borrower of this type on the basis of certain criteria being met. Trading in this capacity for at least 12 months will strengthen your position with lenders but it is important that the help and advice of one of our qualified advisers is sort in order to find a suitable fit within the market.
Zero-hour contract mortgages
This is another type on contract that lenders will view as high risk due to there not being any guaranteed hours of work. Lenders who will borrow to a contractor of this type will normally require a history of 12 months’ income and evidence that the work is likely to continue in future. Although difficult, there is a possibility that some lenders will view borrowers with less that 12 months’ of income on a case by case basis so it is recommended that you seek the advice of one of our advisers to give you the best chance of success.
Contractor mortgages for agency workers
Back in 2011, the Agency Workers Regulations (AWR) were introduced, allowing temporary agency workers similar rights to those in permanent employment, as a result of this lenders now view these types of worker as lower risk. With this change taken into account, there are now some lenders who will lend to agency workers subject to certain criteria being met.
Professional contractor mortgages
Professional contractor mortgages include but are not limited to:
- Mortgages for IT contractors
- Mortgages for accountancy contract workers
- Mortgages for solicitors who are contract works
Professional contract workers can sometimes find mortgage lenders who are willing to offer them a mortgage based on their contract rate rather than the amount of time served in their role. Lenders prefer if your day rates and service history is clear, and it may even be possible to secure a mortgage without proof of an annual salary.
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The Financial Conduct Authority do not regulate buy to let mortgages.