Contractor Mortgages De-Mystified

3 min
Important to know

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Contractor Mortgages De-Mystified

When we talk about contractor mortgages, we refer to mortgages specifically tailored to the needs of people who work on a freelance or temporary contract basis rather than for a permanent employer using PAYE. Because of the ebb and flow that characterises much freelance work, some mortgage lenders are unwilling to lend to contractors at a competitive rate, and several lenders struggle to interpret limited company income correctly. 

What is a contractor mortgage?

A contractor mortgage is a specific type of mortgage arrangement aimed at people who undertake freelance or short-term contractual work. These mortgages are often offered by specialist providers who better understand the rigours of business and the work of freelance and contract workers.

As freelance and remote work opportunities have blossomed in recent years, there are more people than ever looking into the possibilities offered by contract mortgages, and it is vital to ensure that you have the best and most up-to-date information available when making a decision. 

How Much Can I Borrow for a Contractor Mortgage in the UK?

The actual amount of money that you will be able to borrow as part of a contractor mortgage in the UK will depend on several factors, and these include:

  • How much have you saved as a deposit, and what percentage of the mortgage does this cover?
  • The repayment term that you would like to pay the mortgage over.
  • Your credit record and the information that credit reference agencies hold on you.
  • The number of dependents you have and their respective ages.
  • The amount of time you have been working as a contractor.

These factors will help the lender decide how much money you may be offered with a contractor mortgage. The final decision may be down to the discretion of an individual so it is important to ensure you make a good impression and have all necessary paperwork in order. 

How are contractor mortgages calculated?

The way that contractor mortgages are calculated is similar to how they are calculated for full-time employees, except for a few differences in the formula used. It is common for your daily rate in pounds sterling to be used as the base figure, and this is then multiplied by 5 for the working days in the week and then by 48 for the working weeks in the year. This includes a standard 4-week break for holiday time. 

It depends on the company doing the calculation, but it is still common for this figure to be multiplied by a factor of up to 4.5 to find the amount of the mortgage offer.

Tips for Making the Application Process Easier

  1. Ensure that your contracts are all up to date.
  2. Try not to leave lengthy gaps between contracts.
  3. Explore all of your repayment options, including optional overpayments.
  4. A 10% deposit is considered the minimum you should have.
  5. Budget your payments carefully, taking into account any volatility that could impact your ability to pay. 

Your Mortgage Experts 

  • At Your Mortgage Experts we specialise in arranging mortgages for business owners and Limited Company Directors, as well as Sole Traders, Self-Employed Contractors, and Limited Liability Partnership.
  • We work with accountants regularly, with the knowledge and experience to understand your company accounts, how you receive your income, and the value that your business generates.
  • We have the expertise to present your business accounts to a mortgage underwriter in the correct way.
  • We can get you a mortgage not just based on your salary and dividend but also looking at the net profit of the business.
  • We have access to 1000s of mortgage product deals from a large number of mortgage lenders, including specialist lenders that best understand the more complex needs of business owners and limited company directors.

You will not get this expertise if you just approach your local bank or try to find your own mortgage online. To request a free consultation with one of our expert advisers call us today on 020 8154 1111.

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Luca Bertolino

Mortgage Expert

Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.

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