Mortgages for Contractors — How to Get One

 

Flexibility in the workplace is on the rise as a result of the pandemic, with more people choosing to work from home and spend fewer hours in the office. It is likely that the growing number of contract professionals and self-employed workers will also rise as the furlough scheme comes to an end and employers cut back on staff, persuading many previously employed workers to go it alone and set up their own business.

Contractors, who work across industries such as IT, finance and construction, are remunerated differently from those who are employed, which can make it trickier when it comes to getting a mortgage. Most are paid a day rate via a limited or umbrella company, so will require a specialist contractor mortgage. Lenders who offer these multiply the day rate by the number of working days in the year to work out the contractor’s annual income. This is where contractors need to watch out as lenders vary considerably in the number of weeks they are prepared to use, with some taking as few as 36 weeks, while others will take as many as 48 weeks’ income into account. This significantly impacts the size of mortgage a contractor can get, which is why it is so important to seek advice when it comes to getting a contractor mortgage.

Those lenders who do not offer contractor mortgages usually treat the borrower as self-employed, taking salary and dividends from the past two years’ accounts. This may not be a fair reflection of the contractor’s income, particularly if they have retained profits in the business and/or have been contracting for less than two years.

To further complicate matters, from next April, IR 35 regulation will be introduced, designed to bring contractors’ pay into line with those who are employed. It is therefore particularly important for contractors to seek mortgage advice from a whole-of-market broker such as AWS Financial Services who understands the changes and knows which lenders treat contractors most sympathetically.

Lenders are primarily concerned that they get back the money they lend so contractors who can prove their income satisfactorily should not be penalised when it comes to getting a mortgage, paying the same rates and achieving similar terms as those who are in employment. But the process can be trickier in terms of knowing which lenders to approach and what documentation they require; at AWS Financial Services we can guide you through this and prepare you properly so that there are no nasty surprises when it comes to applying for a contractor mortgage. 

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