Working as a contractor offers many perks, hence why it’s a popular lifestyle choice for many. However, due to fluctuations in earnings and uncertainty; many have historically faced difficulty when trying to secure contractor friendly mortgages.
Mortgage lenders will usually assess the applicant’s income, expenses and security to make informed decisions on how much to lend. While it may be trickier for contractors and self-employed individuals, it is still an achievable goal with the right support and paperwork behind you.
With the right planning and preparation, gaining a mortgage as a contractor can be attained.
How much can a contractor borrow?
As is the case with normal mortgage applications, lenders will want to see an average of 2-3 years of previous years earnings, including expenses, in order to make an affordability assessment. That being said, an increasing number of lenders are allowing the securing of a mortgage based on an annualised multiple of their daily contract rate.
How is your income assessed?
As mentioned above, mortgage lenders will often look at a contractor’s average income over their recent years of trading. For example, if a contractor earns £50,000 in year one, and £60,000 in year two, then an average income of £55,000 will be assumed. If you are paid on a day rate, then some lenders may also use this to determine what an average years’ salary would amount to.
In many cases, a contractor's income each year has been much more varied than the previous example, and the pandemic has caused even more earning inconsistencies, which can make the process more difficult. In this case, lenders may prioritise proof of work in the future, alongside previous years prior to the pandemic.
Key tips for getting contractor friendly mortgages
There are many ways to strengthen your mortgage application. Some key tips include:
Consistency with clients
Providing evidence from regular clients, showing confirmation of contracting for ongoing and long-term work, will help boost your application. Letters and a CV containing a variety of contracts, will help this further.
Larger deposits
By placing a larger deposit, there’s arguable a smaller risk from the perspective of the lender. Therefore, they will be more included to offer a cheaper mortgage. By giving yourself time before applying for a mortgage, this enables you to put money aside in preparation.
Maintain a good credit score
One of the first things a prospective lender will look at is your credit score. Any missed payments will count against you and could hinder your chances of securing a mortgage or limit the amount you can borrow. A good (and free) tool to check your credit status is through MSE credit club. You might be surprised to find accounts you had forgotten existed but have money coming out of. It’s important to ensure the cancellation of any unused cards and ensure your current ones alongside your bills and electoral register, are all up to date with your current address.
Avoid large breaks in between contracts
This is sometimes easier said that done, but by trying to minimise time between contract jobs, this gives the appearance of increased financial security and improves the evidence of consistency of work. Increasingly large gaps in between work can also increase the deemed ‘risk’, which could count against you in your mortgage application.
Mortgages for contractors with Procorre
Are you a contractor who needs support with getting a mortgage?
Procorre have close relationships with mortgage advisors who specialise in assisting contractors with all of the necessary paperwork and administration for getting a mortgage. Procorre Partners can take advantage of this benefit, along with many others when they join the Procorre Partnership.
Get in touch to find out more.
