Mortgages for contractors

Not necessarily, and this is where contractors receive the most conflicting advice.

Lenders using day rate annualisation treat your current contract as the primary evidence, so company accounts become far less central. Most want to see around twelve months of contracting history in your field, though that history does not need to be unbroken. Some will count the full term of your current contract rather than only the time already worked, so three months served with nine months remaining can satisfy a twelve month requirement.

A smaller group will consider six months or less where the wider profile is strong, meaning a solid day rate, a current contract with reasonable time left, and relevant experience in the same field beforehand.

There is a particularly useful case. If you left a permanent role and now contract back into the same sector, or to the same employer, certain lenders will use your day rate straight away with no minimum contracting history at all.

Gaps are a normal feature of contracting and lenders know it, but their tolerance varies.

Breaks of four to six weeks are generally treated as ordinary between contract pauses and need little more than a clear timeline. Gaps of six to eight weeks usually want brief context, such as a contract ending, a planned holiday, then the next engagement starting.

Longer breaks need careful handling. A three month gap might prompt a lender to reduce your annualised figure proportionately, or it might not, provided you can show it was a one off such as parental leave, a relocation or a deliberate career break rather than evidence of unreliable work flow.

The remedy in every case is documentation. We supply lenders with a full engagement timeline showing start and end dates, day rates and a short note explaining each break, which turns something that could look erratic into a clear record of continuous professional work.

It changes the assessment route rather than closing doors.

Working outside IR35 through your own limited company is the position that gives most flexibility, because lenders can either treat you as self employed or annualise your day rate, and the latter almost always produces the higher figure.

Inside IR35 and paid through an umbrella company, lenders generally treat you as employed and work from your payslips. The practical consequence is that the umbrella deducts employer’s National Insurance, holiday pay accrual and its own margin before you are paid, so the figure a lender sees is lower than your headline day rate suggests.

Contractors paid on agency PAYE are assessed exactly like any other employee, which keeps the paperwork simple but rarely maximises borrowing.

None of these positions prevents a mortgage. Each simply directs us towards a different group of lenders.

Deposit requirements are not linked to how you are paid. Five to ten per cent is a realistic starting point, exactly as it would be for an employed applicant.

That said, a larger deposit genuinely helps. The range of lenders available widens at ten per cent and again at fifteen, and pricing improves meaningfully at twenty five per cent, with the sharpest rates generally reserved for deposits above forty per cent. This matters slightly more for contractors, because the pool of lenders offering day rate assessment at higher loan to value levels is smaller than the market as a whole.

On rates, contractors are not charged a premium. Being paid by contract is no longer treated as high risk, and where a lender will assess you on your day rate you access the same products and pricing as anyone else. What varies between lenders is how much they will lend, not what they charge.

Yes, and this is one of the more common cases we handle.

The two incomes are assessed separately and then combined into a single affordability figure. Your partner’s side is straightforward, since a permanent salary is evidenced with three months of payslips and a P60, and lenders treat it in much the same way across the market.

Your side is where the variation sits, and that is what should drive the choice of lender. It is usually a mistake to select a lender on the strength of how it treats the employed applicant, because the contractor assessment is where hundreds of thousands of pounds of borrowing can be won or lost.

We model the combined position across several lenders and recommend whichever gives the strongest overall result for the household. Occasionally that means accepting a marginally higher rate in exchange for considerably more borrowing, and we will set out that trade off clearly rather than deciding it for you.

It depends on the route, so we confirm which one we are pursuing before asking you to gather anything.

For a day rate application, you will need your current signed contract showing the rate, start date and end date, evidence of any renewal or extension if fewer than three months remain, a CV or engagement timeline covering recent contracts, three to six months of business bank statements, three months of personal bank statements, proof of identity and address, and evidence of your deposit and its source.

For an accounts based application, add SA302 tax calculations with matching tax year overviews, and company accounts signed off by a qualified accountant.

Umbrella and PAYE contractors need three months of payslips, the latest P60 where available, and confirmation of the ongoing assignment.

An accountant’s letter confirming your trading position and IR35 status is often worth obtaining, as it heads off questions that would otherwise delay matters.