Which Mortgage Lenders Offer Contractor-Friendly Mortgages?

11 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.

It has become possible to get a mortgage as a contractor using only gross contract rate and not your net profit from your accounts. Many mortgage lenders have expanded their reach by offering contractor-friendly mortgages once you present your annual gross contract rate. 

However, choosing a contractor-friendly lender is crucial, as this would improve your chances of securing a mortgage. Contractor-friendly mortgage lenders also have a higher chance of understanding your unique needs and offering mortgage products tailored to your circumstances. 

If your income comes from a contract and you are not employed on a permanent basis, you would be classed as a contractor. This will be the case if you are self-employed and pay your own tax; or if you are employed via an umbrella company who deducts the tax for you; or also if you are employed but on a short-term contract, for example on a 12 months fixed term contract.

Are you a contractor searching for contractor-friendly mortgage lenders but unsure where to start? This article provides a comprehensive list of lenders offering contractor-friendly mortgages, outlines the documents mortgage lenders need, and explains why a specialist mortgage broker can help you make an informed decision. So read on.

Contractor-friendly Mortgage Opens Doors to Contractors who don’t Meet the Elite Criteria

If you are a contractor, you would want your income to be assessed based on your “gross” earnings. For example, if you are paid £500 per day, this may be equivalent to £120,000 gross earnings per year (£500 X 5 days X 48 weeks).

Using this gross income, or the “value of the contract”, tends to generally be a more generous way that you can use to borrow money on a mortgage.

Not all mortgage lenders assess your contract income in this way. Some lenders will treat you instead as self-employed and assess your affordability based on “net profit”, which may not be sufficient to borrow the money that you need.

Documents Required by Most Lenders for Contractor Mortgages

The following are the essential documents most mortgage lenders demand to get a genuine contractor mortgage:

  • Proof of address — a bank statement, credit card, or utility bill.
  • A signed copy of your latest contract confirming your contract rate.
  • Proof of Identity — a copy of your driver’s license or passport will do.
  • Bank statements as proof of contract earnings — typically three months, but could extend beyond that or even be less.
  • A copy of your Curriculum Vitae (CV) that highlights your recent work history.

List of Lenders that Offer Contractor-Friendly Mortgages

Here are some of the banks and building societies that offer contractor-friendly mortgages based on gross contract value:

#1. Halifax

Halifax has an extensive offering for contractors. They tend to historically favour IT contractors with a minimum pay rate of £500 or £75,000 per year. However, other contractors are also considered.

Here are other Halifax lending criteria:

  • The applicant contract must still have at least 4-6 weeks remaining at the time of application. If not, they must present proof of a contract extension or renewal.
  • What Halifax accepts as proof of income is your current contract gross value.
  • If it is a first contract, the contractor must have at least two years of work experience in the same profession to qualify.
  • Halifax underwriters dislike seeing more than a six-week gap between contracts.
  • Provision of an up-to-date CV detailing your work experience and past contracts is helpful.

#2. Nationwide Building Society

Nationwide Building Society understands that not all contractors work in the oil and gas or IT industries, nor do they all make over £500/day. As a result, they are providing reasonable mortgage options to contractors who do not fit the strict lending requirements of other lenders.

For example, most contractor-friendly lenders dislike more than a six-week gap between contracts in a year. But Nationwide criteria permit non-contracting for up to 12 weeks in 12 months. Furthermore, their criteria do not make CV submission compulsory.

Additionally, while other lenders require a run-out period of 4-6 weeks or longer, Nationwide does not impose a minimum run-out period. If you are a contractor nearing the end of your contract, Nationwide considers other aspects, such as:

  • How long you have been working in a particular field. 
  • The level of demand for your particular skill.
  • Prior contract renewals you have had in the same field of work.

It is important to note that Nationwide insists that you must have been contracting for at least a year and have been in a similar sector. Other requirements to get a mortgage with Nationwide include proof of Identity and address, your most recent contract, and a history of previous ones over the last year.

#3. Clydesdale Bank

The Clydesdale Bank is another bank that has been offering contractor-friendly mortgages for several years. They understand the needs of contractors and how they work. Clydesdale Bank provides flexible lending criteria, competitive interest rates, and outstanding mortgage products, such as offset mortgages, with no early repayment charges. 

To secure a contractor mortgage with them, here are what they accept and reject:

  • Both IT and non-IT contractors are eligible to apply. However, to qualify for a Clydesdale bank mortgage, the calculated income must be more than £50,000 yearly.
  • Clydesdale requires a CV highlighting at least two years of contracting experience in the industry plus income details for the same period. Clydesdale Bank rejects CVs with more than six-week gaps between contract dates.
  • At the time of application, the borrower’s contract must still have at least 4-6 weeks remaining. If less time remains, the contractor must present proof of a contract extension or renewal.
  • Require applicants to have at least one contract renewal.
  • If the loan-to-value (LTV) is below 70 per cent, accept a contract history of less than two years.
  • Request for previous and current contracts.
  • Reject offshore income structures.
  • Request the latest three months’ bank statements to prove contract income.

#4. Kensington

Kensington is a specialist mortgage lender offering contractor-friendly mortgages while combining Halifax’s outlook with Clydesdale’s flexibility. Similar to Halifax, Kensington only asks for 12 months of continuous history. And just like Clydesdale Bank, Kensington’s underwriting staff can be flexible if a case warrants so. 

However, there are some key distinctions when compared to Halifax and Clydesdale. Kensington has removed the lower-earning threshold Clydesdale and Halifax imposed. In addition, the specialist lender is willing to consider applicants without a perfect credit history.

Furthermore, Kensington accepts applications from all contractors. Nevertheless, contractors must meet certain requirements. These include a contracting history of at least 12 months and no gaps of over six weeks between contracts unless there is a valid reason.

#5. Leeds Building Society (LBS)

Leeds Building Society is another mortgage lender known for offering contractor-friendly mortgages. Their flexible lending criteria, such as low earning threshold, tolerance gap between contracts, and acceptance of contractors from all sectors, have helped solidify that position.

Leeds offers various contractor mortgages, including interest-only, repayment (variable and fixed rate), buy-to-let, and offset mortgages.

Here are Leeds’ lending criteria in detail:

  • Leeds accepts contractors on 1-2 months contracts as long as they have at least a year of contract history.
  • LBS accepts contractors on multiple contracts and those with less than four weeks left on their contract without requiring an extension.
  • Applicants must provide an updated CV, proof of Identity and address, most recent contract, and history of previous ones over the last year.
  • Applicants must provide 3-months of business and personal bank statements and proof of ability to renew contracts.

#6. Metro Bank

Metro Bank has a strong offering for contractors. This lender allows applicants to provide proof of 24 months of continuous employment in the same sector. Additionally, Metro Bank does not require a minimum income or preferred industry.

It allows a 6-week gap between contracts for the past year. This lender considers contractors with less than four weeks left on a contract as long as they get a renewal or extension first.

However, the bank requires that the contractor has one year of contracting experience. Nevertheless, the bank might consider the applicant if they have a solid reason for serving less time.

Furthermore, the bank’s manual underwriting process allows for individual evaluation and can eliminate the need for perfect credit history if other considerations stack up well. 

Here are the documents you need to provide to support your mortgage application: 

  • An up-to-date CV showing your recent contracting history.
  • Three and one month of business, and personal bank statements, respectively.
  • Proof of current mortgage or rent payment plus proof that your deposit is ready.
  • Your latest contract plus any previous ones for the past 12 months.

#7. Scottish Widows

Like Halifax and BM Solution, Scottish Widows is part of the Lloyds Banking Group.

You may be wondering why the addition of Scottish Widows since Halifax and BM solutions already cater to contractors. While you can access the same market-leading products Halifax provides with Scottish Widows contractor mortgages, you also have options for offset and interest-only mortgages.

Here are the lending criteria for contractors: 

  • Scottish Widows mortgages are available to PAYE umbrella contractors and limited companies. There is no minimum earning requirement for IT contractors, but non-IT contractors must earn at least £3500 daily.
  • The lender allows contractors on their first-ever contract to apply as long as they show at least two years of work experience in the same field.
  • An up-to-date CV showing your entire contracting and employment history is required.
  • Your contract must have at least 4-6 weeks remaining at the time of application. If not, you must present proof of a contract extension or renewal.
  • Scottish Widows requires the gross value of your current contract as proof of income.

#8. Saffron Building Society

Saffron Building offers mortgage products for self-employed and contractors, with softened lending criteria showing real intent.  

Contractors with less than six months on their contract can now apply. The prerequisite of two years of contracting is no longer applicable. Additionally, your profession is irrelevant if you work on a contract-to-contract basis. 

Saffron lending criteria are not limited to the IT sector. Therefore, all contractors can benefit from Saffron BS contractor mortgages. The most significant change at Saffron Building Society is their new policy of accepting contractors as early as the first day of their contract.

There are other requirements to qualify for Saffron BS lending. These include:

  • An up-to-date CV showing your employment history and a new contract. The lender also requires a copy of the new contract in the CV.
  • Saffron BS requires 3-month invoices and bank statements.

#9. Virgin Money

With Virgin Money, obtaining a contractor mortgage is not impossible. But they do now evaluate an applicant’s affordability using stricter criteria. Also, their lending criteria vary based on the contract type.

Contractors can be classed as employed for income and affordability purposes, providing they can meet the following criteria:

  • Minimum income of £50,000.
  • Minimum of 12 months contracting experience or a two-year track record employed in the same line of work.
  • A minimum of three months remaining on current contract or evidence of renewal.
  • No more than 6 week break between contracts.
  • It is acceptable for a professional contractor to have a limited company, providing they do not employ other contractors or have more than one contract.

#10. Newbury Building Societies

Newbury building societies are smaller lenders offering contractor-friendly mortgages. They are not the quickest because of their size, and they do not have access to the same funds as the larger lenders. However, there are advantages to underwriting this way.

All underwriting for Newbury Building Societies is manual. It implies that the team can assess each applicant on merit. Additionally, they have eliminated the lower-earning threshold imposed by several larger lenders.

With Newbury BS, people working on fixed renewable contracts are typically assessed as contractors as follows:

  • Contractors who are starting their first contract are acceptable, providing they have a track record in that field.
  • The applicant is a professional e.g. IT, teacher, doctor, accountant, etc.
  • As a guide, there should be no gaps of more than 3 months.
  • The contract should have at least 3 months remaining at the time of application.
  • Income is assessed on the contract terms. If this is not detailed in the contract then, if appropriate, we use the daily rate and assume a 5 day working week and a 48 week working year.
  • Newbury may request bank statements and SA302s or other tax information.
  • There is a minimum income requirement of £30,000, which can be pro-rata if per time.

Why You Need a Specialist Mortgage Broker and How to Choose Right 

Most lenders insist that contractors apply through selected mortgage intermediaries, a specialist broker. A mortgage broker will help minimise stress and save you time by handling all aspects of the mortgage process. This entails helping you search for deals, applying, and speaking with the lender on your behalf. 

Additionally, a specialist mortgage broker with in-depth and expert knowledge of the market can recommend contractor-friendly mortgages suitable for your situation. A competent broker will also know mortgage lenders that are most likely to accept you. Thus, they help you avoid applying for mortgages you are unlikely to get.

But how do you know the right mortgage broker to work with? Always go for the ones that are wholly independent and of course authorised and regulated by the Financial Conduct Authority (FCA). This implies they can approach any lender they believe suits your situation.

Another tip: do your research. Ensure you look into the mortgage broker and their reputation. Find out if they work directly with genuine contractor mortgage lenders alongside their underwriting teams.

Conclusion

So many lenders out there are eager to offer contractor-friendly mortgages. However, applying through a mortgage broker like us is the most efficient way to obtain a mortgage from lenders.

We have direct access to over 90 mortgage lenders. With 20 years of industry experience and knowledge of property and mortgage markets, we help you get your mortgage approved. Contact us right now to begin.

FAQs

Who Provides Mortgages to Contractors?

A number of Mortgage lenders, whether high-street banks or specialist lenders, can provide mortgages to contractors. Each lender has their own eligibility requirements and they carry out their own affordability assessment to determine how much they may lend to you, and the product rates applicable. A specialist mortgage broker can help you navigate this.

What is a Contractor Mortgage? 

A contractor mortgage is a mortgage secured based on a contract rate. Securing a mortgage based on your contract rate does not mean using the net pay from your umbrella Pay As You Earn (PAYE) payslips or your net profit from your end-of-year accounts. Instead, it means annualising your gross contract day rate.

What is Contract-based Underwriting?

Contract-based underwriting is a technique some lenders employ to assess the “affordability” of a contractor’s mortgage. It is the most secure approach to fund your mortgage loan if you are a limited company, umbrella contractor, or a freelance contractor on a fixed term contract. Through this contract-based underwriting you can generally secure high borrowing amounts. 

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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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