Mortgages for Contractors

Securing a mortgage as an independent contractor can present some unique challenges compared to traditional employment situations. However, with the right approach and preparation, it is possible to obtain a mortgage as an independent contractor. Here are some factors to consider:

Income Documentation: As an independent contractor, you may have fluctuating income or income derived from multiple sources. Lenders typically require documentation to verify your income, such as tax returns, bank statements, and contracts or client invoices. Maintaining organised and accurate financial records is crucial to demonstrate your income stability and affordability.

Time in Business: Lenders often prefer to see a track record of consistent income over a period of time. While the specific duration may vary among lenders, having at least two years of self-employment history can increase your chances of mortgage approval. However, some lenders are more flexible and may consider applicants with less than two years of self-employment history.

Creditworthiness: Your credit history and credit score play a significant role in mortgage approval. Lenders assess your creditworthiness to determine your ability to manage debt responsibly. Maintaining a good credit score, paying bills on time, and minimising debt can strengthen your mortgage application.

Down Payment and Savings: Having a sufficient down payment is important for any mortgage application. Lenders generally require a percentage of the property’s purchase price as a down payment. Additionally, having adequate savings for closing costs, home inspections, and other associated expenses is crucial.

Working with a Mortgage Specialist: Consulting with a mortgage specialist, such as Argyll Drummond, who specialise in working with independent contractors can be invaluable. We understand the unique challenges faced by contractors and can guide you through the process, identify lenders who are more contractor-friendly, and help you navigate the documentation requirements.

While securing a mortgage as an independent contractor may require some extra effort, it is certainly achievable. By being prepared, organised, and working with the right professionals, you can increase your chances of successfully obtaining a mortgage tailored to your needs as an independent contractor.

Determining the income of an independent contractor for mortgage purposes involves specific factors that require careful consideration. Let’s explore the typical approach used to calculate independent contractor income for a mortgage application::

Self-Assessment Tax Returns: Lenders often rely on the self-assessment tax returns filed with HM Revenue and Customs (HMRC) to assess independent contractor income. The SA302 form, which provides a summary of your self-assessment tax calculation, is commonly used by lenders to verify your income.

Average Income: Lenders typically calculate an average of your income over a certain period, usually two or three years, to determine your qualifying income. They consider the net profit reported on your tax returns as the basis for assessing your earnings.

Retained Profits: Lenders may also consider retained profits within your business when calculating your income. Retained profits are the earnings that you’ve retained within your business rather than distributing them as dividends. These profits can contribute to your overall income calculation.

Business Expenses: Legitimate business expenses can be deducted from your income when assessing affordability. Lenders generally review the net profit after deducting allowable expenses to arrive at your qualifying income.

Business Bank Statements: Lenders may request your business bank statements to verify the income flowing into your business account. This helps them gain a more current understanding of your income and financial stability.

Industry and Contracts: Lenders may consider the nature of your industry, your contracts, and their duration when assessing your future earning potential. This evaluation can influence their decision on the amount they are willing to lend.

It’s important to note that each lender in the UK may have their own specific criteria and policies for calculating independent contractor income. Argyll Drummond can guide you through the process, help you gather the required documentation and present your income in the most favourable way to increase your chances of securing a mortgage based on your independent contractor income.

The number of years you need to be self-employed to qualify for a contractor mortgage can vary depending on the lender’s requirements. While many lenders prefer to see a track record of at least two to three years of self-employment, there are options available for contractors with less than two years of self-employment history. Here’s a breakdown:

Two to Three Years of Self-Employment: Most lenders consider a consistent track record of self-employment for a minimum of two to three years. This allows them to assess the stability and reliability of your income over a significant period.

One Year of Self-Employment: Some lenders may consider applicants with one year of self-employment history. However, they typically require additional documentation, such as previous employment records or evidence of expertise in the contracting field.

Less than One Year of Self-Employment: It can be more challenging to obtain a contractor mortgage with less than one year of self-employment history. Lenders often perceive this as a higher risk due to the limited track record. However, there may still be options available, especially if you have relevant industry experience or a strong financial profile.

It’s important to note that each lender has different criteria, and their flexibility may vary. Some lenders specialise in providing mortgages to contractors and may have more lenient requirements for self-employment history.

At Argyll Drummond, we have extensive knowledge of the lending landscape and can connect you with lenders who are more accommodating to contractors with varying self-employment history. We will assess your specific circumstances and guide you toward suitable mortgage options based on your contractor status and income stability.

Yes, having two years’ accounts as a contractor can generally increase your chances of obtaining a contractor mortgage. Many lenders prefer to see a minimum of two years of accounts to assess your income stability and affordability. With two years of accounts, you have a stronger financial track record, allowing lenders to evaluate your income and make a more informed decision. Here’s what you can expect:

Increased Options: Having two years’ accounts opens up a wider range of mortgage options. It demonstrates a level of consistency and provides lenders with a more reliable basis for assessing your income.

Favourable Rates: Lenders may offer more competitive interest rates when you have a minimum of two years’ accounts. This is because you can present a more robust financial history, potentially reducing the perceived risk associated with lending to self-employed individuals.

Enhanced Affordability: With two years’ accounts, lenders can review your average income over that period, offering a more accurate assessment of your earning potential. This can positively impact your affordability and increase the loan amount you may be eligible for.

While two years’ accounts is generally seen as a favourable milestone for contractor mortgages, it’s important to note that each lender has its own criteria and policies. Argyll Drummond can provide valuable insights into lenders that are more flexible with self-employed individuals and help you navigate the mortgage application process. We can leverage our expertise to identify suitable lenders based on your specific circumstances and maximise your chances of securing a contractor mortgage.

When applying for a contractor mortgage, you will typically need to provide several documents to support your application. While specific requirements may vary among lenders, here are some common documents you may need:

Identification: Valid proof of identification, such as a passport or driver’s license, to verify your identity.

Proof of Address: Recent utility bills or bank statements showing your name and current address as proof of residency.

Contracts and Engagement Letters: Copies of your contracts or engagement letters with clients or agencies to demonstrate your ongoing work as a contractor.

CV or Work History: A detailed CV or work history outlining your previous employment, contracting experience, and relevant skills.

Company Accounts: If you operate through a limited company, you may need to provide your company accounts, including profit and loss statements, balance sheets, and tax calculations.

Tax Returns and SA302 Forms: Personal self-assessment tax returns and accompanying SA302 forms issued by HM Revenue and Customs (HMRC) to verify your income. These documents show your declared income and tax liabilities.

Bank Statements: Typically, three to six months’ worth of personal and business bank statements to verify your income, cash flow, and financial stability.

Proof of Deposit: Evidence of your deposit, such as bank statements or investment statements, showing the funds available for your mortgage deposit.

National Insurance Number: Your National Insurance number serves as a unique identifier for your contributions and tax purposes.

It’s important to note that lenders may have specific requirements and may request additional documentation based on your individual circumstances. Working with an experienced  broker such as Argyll Drummond can help ensure you gather the necessary documents and present your application in the best possible light. We can guide you through the process, liaise with lenders on your behalf and increase your chances of securing a contractor mortgage.

Yes, you can get a self-employed contractor remortgage. If you are a self-employed contractor and currently own a property with an existing mortgage, you can explore the option of remortgaging to potentially secure better terms, lower interest rates, or release equity from your property.

When applying for a self-employed contractor remortgage, the process is similar to applying for a mortgage as a self-employed individual. Lenders will assess your income, financial stability, and affordability based on your self-employment status. Here are some key points to consider:

Income Verification: As a self-employed contractor, lenders will typically review your self-assessment tax returns, business accounts, and bank statements to assess your income and affordability. They will want to ensure that your income is stable and sufficient to cover the mortgage repayments.

Financial History: Lenders may also review your credit history, including your payment track record on your current mortgage and other financial obligations, to evaluate your creditworthiness.

Equity in Property: The amount of equity you have in your property can affect your remortgaging options. Lenders may require a specific loan-to-value (LTV) ratio, which is the percentage of your property’s value that you want to borrow.

Mortgage Terms and Rates: When remortgaging, you have the opportunity to secure new mortgage terms and rates. You can choose fixed-rate, variable-rate, or other mortgage products that align with your financial goals and circumstances.

Mortgage Broker: Working with a mortgage broker who specialises in self-employed contractor mortgages can be advantageous. Argyll Drummond have expertise in the field and can help you navigate the remortgaging process, identify suitable lenders, and guide you through the necessary documentation and application requirements.

By remortgaging as a self-employed contractor, you can potentially benefit from improved mortgage terms, lower interest rates, or access to additional funds through equity release.

If you are a self-employed contractor, it can be highly advantageous to work with a specialist mortgage broker like Argyll Drummond. We have extensive experience assisting individuals in comparable financial circumstances.Here are some reasons why you might value our service:

Understanding of self-employed income: Self-employed contractors often have variable income, which can make it more challenging to qualify for a mortgage. We understand the nature of self-employment and can help you navigate this complexity. We will work with you to present your income in the best possible way to lenders and identify mortgage options that suit your financial circumstances.

Knowledge of contractor-specific mortgage products: Argyll Drummond are familiar with the unique mortgage products designed for this self-employed contractors. We can provide insights into contractor-friendly lenders, who may have more flexible criteria when it comes to income verification, contract length, or trading history. Our expertise can increase your chances of finding suitable mortgage options that fit your needs.

Assistance with complex documentation: Self-employed contractors often face additional documentation requirements compared to traditionally employed individuals. Argyll Drummond can guide you through the process and help you gather the necessary documentation, such as tax returns, business accounts and contracts. We can ensure that your application is complete and presents a clear picture of your financial situation to the lender.

Tailored advice and support: Working with Argyll Drummond means you’ll be  receiving advice and support tailored to your specific circumstances. We can assess your financial situation, discuss your long-term goals, and provide guidance on the most suitable mortgage options for you. Our experience working with self-employed contractors can help you make informed decisions throughout the mortgage application process.