What is the definition of a contractor?
- Working on fixed term basis, e.g. 3/6/12 months
- Paid day rate or fixed fee
- Experience in a particular field or track record of contracting
- Ideally had a contract renewed, but depends on the lender
- Limited Company most common (or Sole Trader)
How much does a contractor mortgage UK cost?
- Getting a contractor mortgage in the UK is increasingly possible.
- As more and more people set up on their own or work in more flexible ways, being a contractor is no longer an unusual status.
- You will need to meet contractor mortgage requirements and demonstrate how you pass the lender’s affordability criteria with evidence of your income.
- The good news is that lenders are very in tune with this now.
- If you are in need of mortgages for contractors, below are the main ways you may meet contractor mortgage rules and, broadly, how lenders look at your income when considering a contractor mortgage in the UK.
With a contractor mortgage how much can I borrow?
- The short answer is about four and a half times your income.
- But some lenders may offer as much as five and a half times your income.
Your Borrowing = 4.5 to 5.5 x your income
What do contractor mortgage lenders consider as income?
Contractor mortgage lenders will consider your day rate or income as a Limited Company.
Contractor mortgage based on day rate
In a simple example:
- Lenders take your daily rate, multiplied by days worked (£500 x 5 = £2500, then multiplied by 46 weeks (to allow for gaps in contracts) to give an annual figure.
Therefore:
- A daily rate of £500 on a 5 day a week, 6-month contract is multiplied by 5 x 46 to assess the income = £115,000 for the income used on the mortgage application.
In practice, most contractors are set up as a Limited company.
Limited company
Below are the main ways you may be set up and broadly how lenders look at your income.
Limited Company Director
- Lenders typically take, one, some or all, of the following: Salary, Dividends, Net Profit.
- Income is often worked out as an average over a 2-3-year period, but some lenders will take the most recent year if on an upward trend.
- Minimum time trading to get a mortgage is 12 months (or one set of accounts).
However, using the day rate calculation often works out as more generous / easier to assess.
Most lenders want to see a track record of either contracting or having relevant experience in the industry.
The longer the experience and higher the day rate, the more generous lenders are when coming to assess the borrowing.
How much do contractor mortgages cost?
- The structure of your mortgage (repayment, interest-only, or a combination) has a big impact on how much your monthly repayments will be.
- The other aspect to consider is the type of mortgage product, either a fixed or variable rate, which will help determine the level of your monthly payments.
Need advice from your contractor mortgage advisor on contractor mortgage requirements?
Speak to your contractor mortgage broker today to find out how much you can borrow and how much your contractor mortgage will cost.
Essential to talk to a contractor mortgage broker
- Depending on your mortgage goals, it is essential to talk to a contractor mortgage broker that has access to the whole market.
- Your bank of many years that you know and love, through changes in ‘mortgage affordability’, may not offer you the best terms or loan amount.
- It makes sense to look over the fence to what else is available, and a contractor mortgage advisor is your best and easiest way of doing that. We help you choose a contractor friendly mortgage lenders to suit your requirements.
- We have access to lenders, products, and underwriters that the general public simply do not.
Your contractor mortgage structure
One of the first things to consider is your repayment vehicle.
Do you want to opt for?
- a repayment loan?
- an interest only loan?
- part & part which is a combination of the two?
What is a Repayment mortgage?
You make monthly payments, and at the end of the term, the loan is repaid.
With a repayment mortgage, the monthly payments are higher but with less risk.
What is an Interest Only mortgage?
You simply pay the interest on the mortgage loan and look to pay off the loan later with, say, the sale of property, investments, or bonuses.
With an interest-only mortgage the monthly repayments are lower but is assessed as higher risk.
Your mortgage product
You will also need to consider which type of mortgage product is best for you as this determines your monthly payments.
- Fixed Rate Mortgage. Your repayments are set for 2,5, 10 years.
- Variable mortgage. This is sometimes cheaper, but the rate can go up or down depending on the market and is often penalty free if you want to remortgage.
Rather than asking how much it will cost, consider how much can you afford.
Your contractor mortgage advisor will then structure your mortgage appropriately, based on your risk profile.
What contractor mortgage rates can I get?
- The actual contractor mortgage rates you will be offered will be dependent on your personal circumstance and deposit level. Your contractor mortgage broker will advise you on contractor mortgage requirements suitable for your situation.
- Therefore, think about how much you want to spend each month on your mortgage repayments.
- We have access to a range of lenders in the market, and we have access to exclusive mortgage rates.
How much deposit do I need for a contractor mortgage?
- The long answer is that it is dependent on your circumstances: purchase price, income, and property type.
- The short answer is – about 5%-10%.
- Lenders purely take a risk-based approach to pricing, meaning from a starting point of a 5% deposit, every additional 5% deposit you put down increases the range of lenders you can choose from and therefore decrease the cost of the loan as you are determined as lower risk.
- Lenders consider you a low-risk buyer when you put down a 25% deposit or more.
- The last key figure is a 40% deposit. Once you have a 40% + deposit you get the very cheapest pricing available and very often the exceptionally low rates you see on best buy tables.
We are here to help you with mortgage deals for contractor friendly mortgages and in helping you through the stages of getting a mortgage as a contractor.
As a top-rated London mortgage broker, we are here to guide you on every step of getting a contractor mortgage.
- Your dedicated mortgage broker will provide you with detailed, personalised advice on how much you can borrow and source exclusive mortgage deals.
- In today’s mortgage market, each borrower is assessed on their individual affordability merits. Once we have talked through your personal circumstances, we will advise you on contractor mortgage rates suitable for you.
- This means you get the right advice crucial to ensuring you get the right contractor mortgage for your circumstances.
For contractor friendly mortgages
Rose Capital Partners is a Contractor specialist broker and we take the time to understand your mortgage goals to secure the optimal mortgage deals for you.
- Our mortgage advice is second to none.
- We will advise you on contractor mortgage rates appropriate for you.
- Our aim is to maximise your borrowing potential, minimise your monthly payments and work with you throughout the lifecycle of the loan to manage down the mortgage.
- You are treated as a valued client, not a transaction, and dealt with by an experienced, empathetic person, not an algorithm.
- We have access to competitive deals and with no affiliation to third parties.
- We will always act in the best interests of you, our clients, to give you the best mortgage advice possible to achieve the right mortgage for your life’s goals.
Your property may be repossessed if you do not keep up repayments on your mortgage.
