How do I get a mortgage as a contractor?

Working as a contractor can present challenges that people often take for granted. The potentially intermittent nature of work can result in normally straightforward processes and activities being different or more difficult. As part of our Contractor Support series, we’re spotlighting some of these and offering advice and tips on how to navigate them, ensuring a happy, healthy and financially secure you. In this blog, we look at mortgages.

For contractors, securing a mortgage can feel more challenging than it is for salaried employees. Without a fixed monthly income, or working under a fixed-term contract, lenders may view contractors as higher-risk borrowers. However, with the rise of self-employment and gig work, mortgage providers have become more flexible in accommodating non-traditional employment. With the right preparation and documentation, you can successfully secure a mortgage as a contractor. Here’s a step-by-step guide on how to make it happen.

How lenders view contractors

If you’re self-employed, working with a company on a short or fixed-term contract and your rate of pay has been agreed for the length of the contract, lenders will view you as a contractor.

Unlike salaried employees who provide pay slips and employment contracts, contractors need to prove their financial stability in other ways. Lenders prioritise consistent income, track record, and risk assessment. If you’re a contractor, lenders may ask for:

• Proof of consistent income over the past 1-2 years
• Evidence of a strong track record of work in your field or industry (your CV would be a good shout here, along with additional information from your employers in this time)
• A history of renewing or extending contracts, which demonstrates job stability.

Lenders will assess your affordability based on your average earnings, typically calculated from your last 12-24 months of employment history. If you get paid a day rate, some specialist lenders will calculate your yearly income by multiplying your rate by the average number of working days in a week. This is in turn multiplied by the number of weeks you expect to work in a year.

Organise your financial documents

One of the most important steps in getting a mortgage as a contractor is having the right financial documents ready. While employees submit pay slips, contractors need to provide more comprehensive evidence of their earnings and stability. Essential documents include:

• SA302 Forms (tax calculation summaries) for the past 1-3 years from HMRC.
• Tax year overviews from HMRC to support your SA302s.
• Bank statements (business and personal) to show cash flow and regular income.
• Invoices and contracts to demonstrate your ongoing work and future job prospects.

If you’re a limited company contractor, you may also need to provide:

• Company accounts prepared by an accountant.
• Evidence of retained profit or dividends if you draw income this way.

These documents reassure lenders that you have a steady and predictable income to support monthly mortgage payments.

Boost your credit score

A strong credit score can increase your chances of mortgage approval. Lenders view a good credit score as an indicator of responsible financial management. To improve your score, you should:

• Pay your bills on time to show you can meet financial obligations.
• Avoid applying for multiple forms of credit (like loans or credit cards) right before your mortgage application.
• Check your credit report for errors and correct them as soon as possible.
• Keep credit utilisation low, ideally below 30% of your total available credit.

A strong credit score gives lenders confidence that you’ll make your mortgage payments on time.

Save for a larger deposit

While salaried employees may secure mortgages with a 5-10% deposit, contractors may benefit from providing a larger deposit. This reduces the lender’s risk and can give you access to better interest rates. If possible, aim for a deposit of 15-20% of the property’s value. Not only does this increase your chance of approval, but it also reduces your monthly payments.

Use a specialist mortgage broker

One of the best moves for contractors is to consult with a specialist mortgage broker. Brokers experienced with contractor mortgages, such as Cleerly, understand how lenders assess non-traditional employment and can connect you with lenders more willing to work with contractors. A broker can:

• Identify lenders that specialise in contractor mortgages.
• Negotiate better rates on your behalf.
• Handle paperwork and applications to increase your chances of success.

Some brokers have access to exclusive mortgage deals that aren’t available directly to consumers. Their insight can be invaluable, especially if you’ve been rejected by mainstream lenders.

Different lenders have different criteria for assessing contractors. While some lenders require 2-3 years of accounts, others will accept applications from contractors with as little as 6-12 months of trading history. It’s important to shop around or work with a broker to identify which lenders offer the most flexibility for contractors.

Plan for your affordability assessment

Affordability is a critical aspect of mortgage approval. As a contractor, lenders will want to understand your total financial commitments, including existing debts, expenses, and dependents. Lenders use an income multiple (typically 4-5 times your annual income) to determine how much you can borrow.

For contractors, this calculation may be based on:

• Annualised day rate: Lenders may multiply your daily rate by the number of days worked (commonly 46-48 weeks) to estimate your annual income.
• Gross income from SA302s, contracts, or dividends if you operate as a limited company.

To improve your borrowing potential, aim to reduce debt and avoid major financial commitments (like loans or credit card purchases) before you apply.

Showcase your working history

If you have a history of successfully renewing contracts, lenders are more likely to approve your mortgage. Show evidence of recent contract renewals and ongoing work. If you’re between contracts, lenders may consider your past history as evidence of your ability to secure future work. If you’ve been in the same industry or role for several years, it demonstrates stability and reliability.

Other tips and advice

Contractor mortgages can come with slightly higher interest rates, especially if you have a short track record or a smaller deposit. While this is not always the case, it’s something to be aware of. If you have a larger deposit or have been contracting for several years, you may qualify for more competitive rates.

Finally, patience is key. While the process may be more involved than a standard employee mortgage, thousands of contractors successfully secure mortgages every year. If you’re rejected, take time to understand why. It could be related to missing documents, affordability concerns, or a lender’s strict criteria. With preparation and persistence, you can address these issues and improve your chances in the next application.

Getting a mortgage as a contractor requires more planning and preparation than for traditional employees, but it’s absolutely achievable. By organising your financial documents, working with a specialist broker, and improving your credit score, you can increase your chances of success. With flexible lenders now catering to contractors, freelancers, and gig workers, it’s easier than ever to turn your dream of homeownership into a reality.

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