FAQ: Mortgages for Contractors

(4 minutes to read)

Many contractors in the UK set up their own limited companies to make tax savings. If you do this, as a shareholder in your company, you can draw most of your income from dividends, which you don’t pay National Insurance on. So the company – and you – save money.

Although IR35 tax reforms have made self-employment less lucrative for some, you can still gain significant tax benefits from contracting via a limited company. We have years of experience helping contractors to navigate the tax system.

However, because your income is more complicated than somebody receiving a straight salary from employment, as your income might vary in line with available profits, some mortgage lenders and brokers can be a bit reluctant to give mortgages to contractors. This can be an issue whether you own your company or you’re a contractor for somebody else’s business.

Here we answer some of the most common questions we encounter about mortgages for contractors, helping you gain some clarity around your options for purchasing a property.

Ready to join our contracting revolution?

Join us now

What is a contractor mortgage?

A contractor mortgage is simply a home loan specifically designed for people like yourself. We work with mortgage partners who understand that just because you’re not a permanent employee as such, lending to you is no riskier than lending to a traditional employee. Our partners can minimise complications and make the process as smooth as possible.

Do banks give mortgages to contractors?

Many banks do give mortgages to contractors, although it’s certainly true that many banks have yet to adapt to the new realities of working life in the UK, where millions of people are now classed as contractors. If your main income comes from dividends, then some banks might be hesitant to lend to you because of a seemingly low income.

Can I get a mortgage if I have a limited company?

Absolutely.

Since banks are sometimes not understanding when it comes to contractors and how they gain income from a limited company, it’s often best to use a broker who does understand your situation.

They can approach lenders – even high street lenders – at a head office underwriter level. People at that level are both more familiar with how you make your living and have greater authority to lend money.

Is it hard to get a mortgage as a contractor?

It doesn’t need to be.

You just have to be prepared to go through a specialist broker or financial advisor who has experience in setting up mortgages for contractors. They’ll have established relationships with lenders and underwriters that will help them to overcome any potential complications.

How long do you need to have had a contract to get a mortgage?

It used to be the case that lenders wanted to see three years of accounts, but lenders – and brokers – are now more open-minded. Your broker will include a copy of your current contract with your mortgage application, demonstrating your ability to earn.

Even if you’re relatively new to your profession, you just need to show a strong record of regular employment before you became self-employed.

Can I still get a mortgage if my contract is coming to an end?

You can, but it makes the situation a little more complicated. Lenders like to see a few months remaining on a contract, which they view as being a less risky proposition than a contract with little time left on it.

One thing you can do is ask your client to extend or renew your contract before it expires, explaining the reason why you need this, if necessary. If you’ve been working with a client for some time, you’ll probably find them amenable to this.

Alternatively, you can time a mortgage application for when you have a longer term contract in place.

How does a contractor qualify for a mortgage?

The same way that permanent, salaried employees do. Lenders will assess your ability to repay the mortgage, based upon your current contract rate, your credit score and potential risks, such as outstanding credit, defaulted payments or county court judgments.

Do I need a larger deposit as a contractor?

It can help smooth the process, but if you’re dealing with a lender that understands contracting, you won’t usually need a larger deposit. Again, it’s best to speak to a broker or financial advisor with experience in dealing with mortgages for contractors.

Of course, having a larger deposit will reduce the interest rate you pay on any mortgage, so it’s always a good idea to contribute as large a deposit as you can.

Are interest rates higher for contractors?

Definitely not.

In fact, interest rates can even be lower for contractors, particularly if you’ve built up a substantial deposit by putting money away during good months.

Not all lenders have realised that contractors can actually be a less risky group to lend to, but there’s certainly no interest rate penalty when it comes to contracting.

How much can I borrow as a contractor?

Just as with anybody else, this will depend upon the size of your deposit and your income. The only difference is that you’ll be assessed on your current contract rate, rather than your salary. Typically, you’ll be able to borrow around four times your current contract rate.

Although contractors often had trouble securing a mortgage in the past, lenders are now more flexible and specialist brokers can help you navigate the mortgage market. There are still considerations unique to contractors, but specialist brokers or financial advisors can guide you every step of the way, helping you get your name on those property deeds.

You may also like to read

IR35 and Sole Traders

What is IR35? IR35 is a legislation aimed at putting a stop to ‘disguised employees’ – preventing workers from benefitting from ...

Read More

IR35 2020 Changes

Private sector IR35 changes in April 2020 UPDATE 18/03/20: Last night the Government announced that due to the ongoing Covid-19 situation, they ...

Read More

The Budget March 2021

The Budget 2021 Chancellor Rishi Sunak delivered his much anticipated budget on Wednesday 3rd March 2021 with contractors and the self employed ...

Read More

Why Dolan Accountancy?

Dolan Accountancy was set up by Simon J Dolan, the man behind the well-known brand SJD Accountancy. With over 25 years experience in the contracting marketing, Dolan Accountancy has the heritage, reputation and credibility you can trust. Working closely with our sister company, Contractor Umbrella, it means we can offer one low cost, fixed fee package at £105 + VAT per month. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost. We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours.
  • Free use of Contractor Umbrella – With changes in Public Sector IR35 Legislation we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, Contractor Umbrella.
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams.
  • Free Access to FreeAgent – The founder behind the multi award winning FreeAgent platform was one of Simon’s first clients, therefore it only seems fitting that we offer all of our clients access to FreeAgent, free of charge.
  • Free Business Banking – We have decided to waive our commission so our clients can use Tide free of charge for the first year.
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status.
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative.
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few.
  • Same day payments- We offer same day payments as standard providing funds are received into our account by 9am, for no additional fee.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795100 or email sophie.lewis@dolanaccountancy.com or jaime.thorpe@dolanaccountancy.com.

dav1