Can contractors get a mortgage?
The short answer is YES, but, contractor mortgages are complicated, and your eligibility is dependent on your personal situation.
For the self-employed – freelancers, sole traders, individuals, limited companies and contractors – it can be harder yet, as proving your affordability becomes the biggest factor. However, if your income as a contractor is strong enough, you should still be able to gain access to the same range of mortgage products as those in permanent roles.
How to get a mortgage when you’re a contractor
From mortgages to credit cards, lenders make their lending decisions based largely on risk. Mortgage lenders are less bothered by what you do for a living – and how often you do it – as whether you are likely to make your monthly repayments in full and on time, and on a regular basis.
As contractors will have a fixed end date with no guarantees of renewal, lenders may have a question mark over whether that income is likely to be ongoing. So being able to show evidence of regular, sufficient and sustainable income is crucial, to give the lender confidence that you can take on the mortgage.
How contractors can prove their income to mortgage lenders
Self-certification mortgages – where you simply assured the lender how much you earned- are no longer an option in today’s market and showing hard evidence of what your income looks like is key.
Lenders vary in their approach. Some specialist lenders multiply your contract day rate by the number of days worked each week over 12 months, minus allowing for a four-week holiday, while some take a close look at your tax returns. You would probably need to show:
For Limited companies – Two or three years’ worth of SA302 tax year calculations and accounting – including the salary you take and any dividends you pay yourself.
For Sole traders – Two or three years’ worth of self-assessment tax returns and accounting. While usually your accountant tries to keep the net profits as low as possible, so you pay less tax, ironically for a mortgage application the higher the income, the better it is.
They are also likely to want to see bank statements to show evidence of your income and your outgoings, much like regular mortgage applicants, to demonstrate your ability to afford monthly repayments, as well as proof of future earnings to show that your prospects are good.
Showing that you have a good credit rating is important too, so managing credit accounts well, paying bills on time and staying within your credit limits is especially good practice.