A Guide To Contractor Mortgages

There’s been good news recently if you’re looking for a Contractor Mortgage. The Bank of England unexpectedly put a hold on the interest rate and it’s predicted that mortgage interest rates will fall as a result.

But for many people securing a mortgage isn’t easy, and that’s especially true if you work as a contractor. Due to the nature of contract work, lenders see contractors as a higher risk than conventional employees, and as such there are more obstacles for contractors to overcome to be approved for a mortgage.

Unfortunately, this is understandable. Although contractors are generally well paid, their income can be sporadic. Project-based work means that they don’t have a set salary paid into their bank account each month.

Contracts can be irregular and there might be gaps between them and seasonal variation can also be a factor, such as work drying up over the Christmas period. Contractors also work across a very diverse range of sectors which again adds to the uncertainty for lenders.

Ultimately this makes it more difficult for contractors to meet eligibility requirements and the fact they are a higher risk can be reflected in a lack of choice, higher rates or being turned down when they approach many mainstream mortgage lenders.

The number of self-employed contractors has risen steadily over time and specialist Contractor Mortgage brokers and lenders have emerged to meet the demand from contractors for Contractor Mortgages. These specialists take into account the unique circumstances and needs of contractors when assessing mortgage eligibility.

In this post we’ll break down what Contractor Mortgages are, how they can help contractors secure their dream home and tips for getting accepted.

What are Contractor Mortgages?

The clue is in the name but Contractor Mortgages are a type of mortgage that’s tailored to meet the unique financial situation and needs of contractors. There is more flexibility in the eligibility criteria compared to a traditional mortgage which factors in the lack of a monthly salary and the variable nature of contractor income.

Contractor Mortgage Eligibility Criteria

Rather than assessing monthly salary, which would be the case with a mortgage application for a traditional employee, there’s different lending criteria for Contractor Mortgage providers. They will assess your income by looking at your earnings over time based on your contracts and history of payments.

Factors such as contract lengths and the contract rate you charge your clients, for example daily, hourly or fixed rates, will be looked at. Contract frequency, whether contracts have been renewed, and the likelihood of you securing contracts in the future will also be considerations.

This means that rather than supplying payslips to prove your income, lenders will require documentation such as bank statements, contract details and tax returns to prove your earnings. Keeping detailed financial records and your history of completed contracts over a number of years can help to expedite the process and improve your chances of being accepted, and working with a Contractor Accountant can help in this regard.

Contractor Mortgage Deposits and Interest Rates

What are the Deposit Requirements?

The deposit amount that you’ll need to pay for a Contractor Mortgage is affected by various criteria such as the value of the property, the policies of the lender and how strong your credit history is. It is possible to secure approval for a Contractor Mortgage with a lower deposit but by paying a larger deposit you increase the chances of approval and can potentially unlock better terms and rates.

Are Interest Rates Higher for Contractor Mortgages?

On the basis you use a contractor specialist broker who has access to exclusive products or understands how to place a case with a lender you should not be penalised by having to pay a higher rate of interest. It pays to shop around or seek assistance from a specialist Contractor Mortgage broker as interest rates can vary from lender to lender.

How to Increase Your Chances of Securing a Contractor Mortgage

Save More for a Deposit

The amount of deposit you need varies between lenders, but as a general rule of thumb the amount needed will be anywhere between 5% and 20% of the value of the property. Saving a bigger deposit can give you access to lower interest rates and better mortgage deals. A bigger deposit will also mean your monthly repayments will be lower as you’ve paid off more of the mortgage upfront, and this is favoured by lenders as it reduces the risk to them.

Depending on your financial situation and incomings and outgoings, it can take time to save up a mortgage deposit. Setting up a savings account and paying into that each month is a good start, and interest on the savings you accumulate will help to increase the pot.

Improve Your Credit Score

It’s likely that a Contractor Mortgage is the biggest loan you will take out in your lifetime, so it goes without saying that having a solid credit score is a crucial part of the application process. The better your credit score is, the more chance there is of you being accepted and there are various ways to improve it. Make sure that you pay your bills on time to show that you are reliable, and low credit utilisation is viewed favourably so reduce or clear any outstanding debts.

You can also get a copy of your credit report and check it for errors and fraudulent activity and dispute any issues and have them corrected. It’s also a good idea to keep old bank accounts and credit cards active instead of closing them. Patience is key here as it can take time to build your credit score.

Engage a Specialist Contractor Mortgage Broker

Using a Contractor Mortgage Broker will help you to find the best deal. They will be able to access their network of specialist lenders who tailor their mortgage offerings towards the unique financial circumstances of contractors and self-employed people.

They understand the needs of contractors and have eligibility criteria that differs from traditional mortgages with mainstream lenders, giving contractors a route to home ownership.

Our Contractor Mortgage partner, Professional Contractor Mortgages (PCM) are experienced Contractor Mortgage Brokers who will assess your specific circumstances to identify and arrange the mortgage that is right for you even if you’ve been previously declined.

With strong relationships with the best underwriters and lenders and full-market access, PCM uses their expertise and experience to find you the best and most cost-effective Contractor Mortgage solution.

Borrowing can often be based on your annualised daily or hourly rate to secure a Contractor Mortgage that is tailored to your circumstances and needs. PCM often has access to exclusive products and enhanced lending multiples and bespoke underwriting arrangements for contractors have been negotiated with leading high street lenders.

PCM are the go to Contractor Mortgage broker whether you’re a first time buyer, moving home, re-mortgaging or investing in buy-to-let property. With a personal and straightforward service, PCM will find you the right Contractor Mortgage based on your circumstances.

Click here to get a Quick Quote or click here to discuss your requirements with a Senior Mortgage Consultant.