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.
The contemporary workforce witnesses an increasing number of individuals embracing the contractor role. This choice is driven by the allure of independence and flexibility, affording the freedom to select clients and projects, all while accommodating personal interests and commitments.
Yet, navigating this professional journey presents challenges, as the fluctuating income tied to contracting may paint individuals as higher-risk to banks. Despite potentially complicating mortgage approvals, this obstacle is certainly manageable.
Within this comprehensive guide, we delve into the intricacies of obtaining a mortgage as a contractor. Covering the essential preparations, strategies to enhance your eligibility, and guidance on selecting appropriate lenders, this resource equips you with the knowledge needed to navigate the mortgage landscape successfully.
Is It Possible For a Contractor to Secure a Mortgage?
Yes, contractors can indeed obtain a mortgage, but the challenge lies in demonstrating the sustainability of their income. Contractual work often results in intermittent income, a concern that lenders closely scrutinise.
To successfully secure a mortgage, you must present compelling evidence of a consistent income stream. Strategies for accomplishing this includes providing documentation of upcoming contracts and minimising gaps between assignments.
The crucial message from this guide is the importance of choosing a mortgage lender that specifically caters to contractors. Additionally, it’s essential to ensure that you meet all the other criteria set by your chosen lender. Merely being accepted by a lender who works with contractors doesn’t automatically guarantee eligibility.
For example, certain lenders may not extend their services to zero-hour contract workers, while others do. Additionally, some lenders may stipulate a minimum six-month work history, while others assess your income without such stringent requirements.
It’s imperative to thoroughly examine the eligibility criteria of your chosen lender to increase your chances of a successful mortgage application.
How to Secure a Mortgage as a Contractor
Obtaining a mortgage as a contractor necessitates demonstrating to lenders that your income is sufficient to meet the repayment obligations of the mortgage in question. To achieve this, consider the following steps:
1. Minimise Employment Gaps
Strive to reduce breaks between contracts, aiming for no more than 4-6 weeks of gaps annually. This practice not only strengthens your application but also broadens your options by making you more appealing to a greater number of lenders.
2. Establish a Consistent Work Pattern
Showcase a steady and predictable work history to lenders. A consistent pattern of employment reinforces the perception of a continuous income stream. Conversely, a sporadic work pattern may weaken your mortgage application.
But some lenders may permit small gaps in employment, usually around 4-6 weeks in the last year. However, minimising these gaps is advantageous, as exceeding two months in the past year may lead to non-compliance with the criteria.
3. Plan for Contract Renewals
Anticipate and plan for future contract renewals, illustrating to lenders that you have a subsequent contract lined up as your current one concludes. Failing to secure another contract when your present work arrangement concludes could pose challenges during the mortgage application process.
Lenders usually evaluate the duration remaining on your current contract. Generally, a minimum of six months is required for eligibility, unless your contract is renewable. While some lenders may consider fewer remaining months, a robust application in other aspects becomes crucial.
4. Compile Employment Evidence
While lenders will scrutinise your income, presenting evidence of past contracts bolsters your application. Demonstrating a history of working within the same field further reinforces your credibility with lenders.
5. Check Your Credit Score
Assess your credit score to review your credit history for potential issues or inaccuracies. Identifying and rectifying any discrepancies in your credit file before applying for a mortgage can enhance your overall financial standing in the eyes of lenders.
What Documentation is Required for Obtaining a Mortgage as a Contractor?
For self-employed contractors seeking a mortgage, the submission of the following documents is imperative:
A. SA302 Form
Your SA302 serves as a concise overview of your income and tax payments. Accessible through the HMRC self-assessment portal, you can download your SA302 forms online.
B. Bank Statements
Typically, lenders require a three-month snapshot of your bank statements to evaluate your income and spending patterns.
If you issue invoices to your employer, including these in your application supports your case. Invoices delineate payment details, including dates and amounts, such as your day rate, allowing lenders to cross-reference them with your bank statements.
D. Contractual Evidence
Lenders will request documentation outlining the terms and conditions of your contract. Providing older contracts can further strengthen your application, offering evidence of consistent employment history with minimal gaps.
If you receive payslips, a minimum of three months’ worth needs to be presented to your lender for assessment.
Securing a mortgage as a contractor involves understanding the intricacies of the process, being well-prepared, and making informed decisions. While challenges exist, the flexibility and tailored options of contractor mortgages make homeownership an achievable goal for individuals in the contracting world.
At Your Mortgage Experts, we take pride in our ability to navigate the intricacies of contractor-specific mortgage solutions. Our tailored approach ensures that each client’s unique needs are addressed with precision, backed by a wealth of experience. Over the past 20 years, we’ve successfully assisted numerous clients from diverse backgrounds, demonstrating our commitment to delivering excellence in financial services.
Trust in our expertise to guide you seamlessly through the mortgage process, providing peace of mind and a personalised touch to your journey toward securing your dream home.
Can contractors with irregular income secure mortgages?
Yes, contractor mortgages are designed to accommodate irregular income, offering flexibility in the application process.
How can I improve my eligibility for a contractor mortgage?
Maintaining a strong credit score, a consistent work history, and solid financial planning can enhance eligibility.
What role does IR35 play in contractor mortgages?
IR35 legislation can impact how lenders assess contractor income, necessitating an understanding of its implications.
Are interest rates higher for contractor mortgages?
Yes, contractor mortgages may have higher interest rates, but negotiating and comparing offers can help secure favourable terms.
Luca BertolinoMortgage 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.