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Contractor Mortgage - What you need to know

There are a lot of advantages to being self-employed, especially when it comes to your finances. The flexibility and freedom are both something that many self-employed individuals greatly appreciate.

However, it also comes with drawbacks, one of them being that it can be much more difficult to find a traditional mortgage. Here, we’re going to look at an alternative, and what you need to know about contractor mortgages.

About Mortgages for Contractors

People who work as a self-employed worker with no permanent position as part of a company, or as a short-term employee, may not be able to apply for the average mortgage. However, there are mortgages specifically for these people who might be seen as higher risk by traditional lenders.

Contractor mortgage lenders will offer loans specifically aimed at the self-employed, fixed-term contractors, zero-hour workers, and short-term employees. Depending on the industry that you work in and how you receive payments.  

Finding which type of contractor mortgages apply to you and how you work is important to get the best possible deal.

Who they are aimed at? 

Contractor mortgages are aimed for any self-employed workers, including business owners and freelancers, who do not get paid directly by an employer. If you’re an employed person working on a short-term or fixed contract, you may also count as a contractor in the eyes of a lender.

There are some who might say that contractors who have been self-employed for a period of fewer than six months can’t get a contractor mortgage, but that’s not strictly true. There are mortgage lenders who may offer loans for people in that position, though they tend to require you to have a higher income.

How are they different from a standard mortgage?

There are a lot of assumptions about how contractor mortgages differ from the usual, but not all of them are strictly true. If you are a relatively new contractor without much information on your earnings to offer, you might be considered “high risk”, but many lenders are looking at contractors differently nowadays.

It is true that contractor mortgages can require larger deposits, have higher interest rates and fees, and less flexibility in terms of repayment terms. However, this all depends on which lenders you borrow from, as well as how well you come off in your application.

The only difference that is almost a certainty is that self-employed workers, contractors, and people who work on short-term employment contracts will likely be assessed by different criteria when applying for a loan.

Since mortgage lenders cannot look at your pay history as easily, they are likely to ask for more information on your finances and how much money you earn.

How do they work? 

There is no specific type of mortgage designed for contractors, but rather a range of different contract types that may or may not be available to you. Either way, they typically work as any other mortgages work.

After your successful application, you will pay a deposit to the lender, often between 10-20% of the total value of the property you wish to buy. The deposit is taken off of the total value of the home and you pay the rest back, month-by-month, as well as the interest that gathers on top.

The interest that builds changes from loan to loan, with fixed-rate mortgages having an interest rate that is frozen for some time, while variable interest rates change more freely. Once you have paid off the entirety of the loan and interest, you own the home entirely.

How do you go about arranging one? 

It’s important that you specifically look for lenders who are open to taking applications from contractor, especially if you work on a day rate. Applying for a mortgage with these usually involves giving all the information available on your income, allowing them to average it out to find what your average monthly earnings have been over a few recent years.

The average found from this math is then used to determine how much mortgage you can pay back. Contractor mortgage lenders will also look at factors such as your credit score and existing loans and assets to make an estimate of how reliably you can pay back any loan you apply for.

If your earnings have changed dramatically over the past few months or year, or you work on a day rate, the calculations of your affordability may change some.

Improving your chances of a successful application

While you do not have to do this in order to get a contractor mortgage, it is certainly true that you can improve your chances of a successful application if you are willing to put down a larger deposit on the home. Similarly, if you can provide other signs of long-term security, such as an on-going agreement with a client or past agreements that show your long-term financial stability, this can greatly help.

Banks look for stability and reliability. As such, it may be recommended that you try to not take as much time off as your flexibility would allow. For instance, if you take more than eight weeks of work in a year, this can be a worrying sign for a lender.

Lastly, make sure that you’re working with lenders who are known to be contractor-friendly. Some traditional lenders may have old-fashioned attitudes as to the reliability of mortgages as borrowers. However, with a mortgage broker, you can more easily find those that understand how contractors really work and will, therefore, be more likely to accept your loan application.

When you’re choosing a mortgage, it’s important to choose one that suits your needs and circumstances, including the fact that you’re self-employed. That’s precisely what a mortgage broker does, so be sure to take a look at our services and get in touch if you have any questions about finding the right contractor mortgage for you.

Get in touch to learn more about contractor mortgages

When you’re choosing a mortgage, it’s important to choose one that suits your needs and circumstances, including the fact that you’re self-employed. That’s precisely what a mortgage broker does, so be sure to take a look at our services and get in touch if you have any questions about finding the right contractor mortgage for you.

Contractor Mortgage

Ross from Home Financial NW has helped me through every step of the mortgage process over the last few months, a process made much more difficult owing to the fact I am self-employed. He has expertly guided me through every stage of my application and helped me to secure a mortgage for a new house. Throughout the last few months he has provided amazing expert advice in such a friendly way, it has made the entire process super easy and stress free! I would highly recommend Ross to anyone I know.

Contractor Mortgage

Can honestly not recommend Ross Jones at homes financial enough, he’s been amazing our case was far from simple without the added issues from covid. He’s worked so hard to source us the best deal and to offer the best advice and guidance he could give, nothings been too much trouble. He fully guided us though the process supported ours decisions with data advice. Ross is Polite, professional, hard working, truthful and honest. Always quick responses to email and calls and goes that extra mile. I’ve already recommended Ross to multiple friends and family. He is an absolute credit to your team, thank you so much.

Contractor Mortgage

Fabulous service! This our second time using home financial and wouldn’t go anywhere else. Ross is very knowledgeable and extremely supportive through the whole process. Huge thanks for all your help 🙂

Contractor Mortgage

Ross and the team at Home Financial have been brilliant, can’t recommend them enough. They went above and beyond in explaining the process and putting us at ease. 5⭐

Contractor Mortgage

A fantastic company to deal with Lindsey was amazing and went out of her way to answer our questions. She made the whole process easy and hassle free! Will continue using Lindsey and this company in the future.

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