Getting a mortgage is a milestone moment in your life. It’s a major commitment, and one you can’t afford to get wrong. Frustratingly, though, finding the right deal is often more complicated if you’re a contractor, or self-employed. It can help, therefore, to draw on the advice and expertise of an experienced, independent mortgage broker. Ideally, someone who specialises in contractor mortgages.
If you’re a contractor, freelancer, or umbrella company employee who’s looking to apply for a mortgage, you need an advisor who speaks your language and understands the industry you work in. After all, if your mortgage broker understands how you operate – and how you get paid – they’re bound to have a more accurate perspective of what view each lender will take of you and your application. The right mortgage broker can help you access competitive mortgage rates with reputable providers – even if you’ve struggled to get a mortgage elsewhere.
If you’re apprehensive about using a mortgage broker/advisor for the first time, don’t worry. In this guide, we’ll clear up the confusion around contractor mortgages. And, we'll also take a look at some key questions to ask a mortgage broker. We hope you find the information useful.
In this article you'll find...
What is a contractor mortgage?
Before we discuss what questions to ask a mortgage broker, let’s clarify what a contractor mortgage actually is.
When we talk about contractor mortgages, we’re referring to mortgages that are taken out by contractors, freelancers and umbrella company employees.
As many contractors will attest, getting a mortgage can often be more complex than it for those in permanent employment. You’re likely to get considered as a ‘higher-risk’ borrower. And, depending on your financial circumstances, you might not necessarily ‘fit the mould’ for a more traditional mortgage. Moreover, finding a lender that can accommodate your needs and understand how you work can prove time-consuming and frustrating.
If the lenders say no, where do you go?
Well, it’s important to seek the support and advice of a specialist mortgage broker. That is, someone who understands your needs as a contractor as well as how you get paid – regardless of how complex your circumstances are.
In fact, at Danbro Financial Planning, we say ‘the more challenging the better’!
We’re in your corner. And, with whole market independence and access to a wide range of lenders, we’ll work to independently broker the best contractor mortgage deal for you and your family.
Can I get a mortgage if I’m self-employed?
Yes, of course. There are mortgage lenders who are happy to consider applications from contractors, umbrella company employees, and the self-employed.
Whilst it’s not always without complication – for instance, some lenders may choose not to work with you depending on your circumstances or if you have less typical working arrangements – solutions are available to those who aren’t in permanent employment. Not to mention those with poor credit or a short contracting history. It can just make it a little bit trickier to find the best deal.
Fortunately, some banks and lenders nowadays are far more attuned to how professional contractors, umbrella employees, and self-employed people operate, as well as how they earn their money. It’s therefore not always the case that you need to have 3+ years’ accounts to secure your contractor mortgage.
Your employment status will get taken into consideration. But, there are plenty of lenders prepared to underwrite mortgages based on a calculation of your contract rate rather than on the basis of your accounts – even if you’ve struggled to get a mortgage via more conventional routes. So, as long as you have at least 12 months’ accounts to show a prospective lender, you should be in a position to begin your mortgage application process.
Can I get a mortgage on a fixed-term contract?
Yes, there are mortgage solutions available to you if you’re on a fixed-term contract/s. However, as with any mortgage deal, it will depend on your personal circumstances and the deals that are available when you come to market.
Different lenders have different qualification and affordability conditions. Mortgage eligibility criteria is at the discretion of each lender. It tends to fluctuate according to market variations and economic conditions.
This is where we come in.
At Danbro Financial Planning, it’s our business to stay ahead of the game and keep on top of what’s happening in the market.
Whether you’ve been contracting for years or if you’ve recently moved from a full-time position and are operating under your first fixed-term contract, our team have helped people just like you access high-value, competitively priced mortgages. Even those who have struggled to secure a mortgage elsewhere. Using our network of contacts and extensive market knowledge, we’ll work with you to find the right deal with the most suitable lender.
So, don’t let misperception around your fixed-term contract put you off pursuing your dream property.
How long do you have to be self-employed to get a mortgage?
When a lender makes a decision on how much you’re able to borrow as a self-employed person – or, indeed, whether you qualify for a mortgage with them at all – they base their calculations on myriad factors. The chief determining points for many are deposit size and average profits over a certain number of years. This is usually two or three years, with most lenders stipulating a minimum requirement of 12 to 18 months of continuous contracting.
With fewer assurances over contract and income prospects, self-employed workers are often considered higher risk by some banks and building societies. Particularly applicants who are new to those forms of employment. That’s why lenders tend to want to see at least 12 months’ accounts before considering a self-employed mortgage application.
That said, if you’re a newer contractor or self-employed, it doesn’t necessarily mean you’ll be unable to secure competitive rates with a choice of respected providers.
In many cases, if you have 12 months’ accounts, plus the minimum deposit level required by your lender, and you’ve passed the requisite credit and eligibility checks, you’ll be able to apply for a mortgage.
As we said earlier, there are many reputable lenders that’re prepared to underwrite mortgages based on a calculation of your contract rate – and other factors – instead of just your accounts alone. At Danbro Financial Planning, we can help you locate those lenders. So, if you have any or all of the following, but you’ve struggled to secure a mortgage via more conventional routes, get in touch to find out if we can help:
- Proof of income/earnings/retained profits
- Bank statements evidencing regular outgoings, direct debits, and debt, loan, and credit card repayments
- Personal and/or corporate tax returns
- Financial accounts (ideally produced by a chartered accountant)
- Trading accounts
- Evidence of agreed future contracts
Again, from a lender’s perspective, the ‘ideal’ self-employed applicant is someone with at least the minimum deposit required, perhaps with a partner or another contributor to help repay the mortgage, and someone with several years’ worth of solid, regular, accurate accounts prepared by a professional accountant.
However, as was evidenced very publicly during the pandemic, these circumstances certainly don’t apply to everyone. That’s why some lenders are willing to take other things into consideration when it comes to those who don’t fit the description above. Such as:
- Do you have a proven track record of regular work over a long period – even if that’s not in self-employment?
- Have you recently left a position of employment to become a contractor?
- Have you got contracts in place for future work?
- Is your credit score – and that of your business – good?
- Are you in debt?
- Are you ‘sharing’ your application – and subsequent mortgage repayments – with someone else?
- Are you an existing landlord or homeowner with equity in another property/properties?
- Can you prove you’re able to meet regular repayments?
How much can I borrow for a mortgage as a contractor?
This is one of the most important questions to ask a mortgage broker. There are plenty of factors involved in determining how much you’re entitled to borrow as a contractor. This includes your:
- Contract rate
- Contracting history
- Gaps in-between contracts
- Acceptable income
- Credit rating
- Deposit amount
- Equity in existing property/properties
- Outstanding debt
- Existing financial commitments and other monthly commitments
- How many dependents you have
- Eligibility for government-backed schemes, such as Help-to-Buy loans
Most lenders employ an ‘affordability calculator’, rather than income multiples, to determine how much they’re willing to lend you. Generally speaking, as a contractor or self-employed worker, you should be able to borrow between four and five times your annual income.
Some 95% mortgages are available but, as you’d imagine, the bigger your deposit amount, the better the rates you’ll likely be able to apply for.
How much does it cost to get a mortgage?
So, how much does it cost to get a mortgage as a contractor? Well, in simple terms it’s a combination of:
- The deposit amount you’ve saved up
- Your monthly interest and mortgage repayments
- The ‘arrangement fee’ that’s charged by your lender
But, let’s take a look beyond the interest rates and repayment charges, and consider some of the other costs associated with getting a mortgage, starting with those arrangement fees.
Arrangement fees are often also referred to as product fees. Arrangement fees are, essentially, a charge that covers the lender’s costs for administering your mortgage. They tend to land somewhere between £1,000 and £2,000. The exact fee is at the lender’s discretion, so it could be more or less depending on which provider you select. Often, arrangement fees can be paid in full up front, or added to the total cost of the mortgage. The latter would require you to pay interest on it, though.
Some lenders may also stipulate the payment of a ‘booking fee’ – usually of a couple of hundred pounds – in order to secure a particular mortgage deal/product.
Both of these charges are set by the lender. In some cases, neither will apply. And, it’s worth saying here that the only instances where we’d recommend a mortgage product that requires a booking fee is when that product is the most cost effective solution for your circumstances over the full term of the mortgage, compared to similar products that do not contain a fee.
There’s also a potential valuation survey fee to pay at the application stage. This is designed to protect the lender and ensure the property is worth what you’ve agreed to pay for it. Some lovely lenders will foot the bill for this themselves, but it’s important that you’re aware of it just in case.
It’s also important to distinguish between a valuation survey and a property survey. The latter is what you, the buyer, can choose to fund to make sure the property you’re buying is in a good condition (i.e. no hidden or unexpected damp, plumbing problems, or electrical issues). Surveys are optional but, in most cases, advisable.
Of course, if you opt to draw on the expertise of a specialist mortgage broker, there will be a charge for this service. Brokerage fees vary depending on the provider you select and the service/support you receive. At Danbro Financial Planning, we’ll discuss our fee structure with you in your initial meetings and further outline our costs in our terms of business. Moreover, you won’t make a payment until around the time your mortgage is finalised, when your agreement is in place. Our fees are competitive, transparent, and excellent value for money.
In addition, once your mortgage has gone through, there are other costs to consider too. Namely:
- Conveyancing/solicitor fees for the cost of the legal work involved in property transactions.
- Stamp duty. This is the tax you pay when buying a property. It’s dependent on whether the value of your property sits above or below the stamp duty threshold.
- The cost of Land Registry, which transfers the registration of a property into your name.
- Removal costs.
- Potential renovation costs.
- Leasehold, freehold and/or ground rent costs. All of which are subject to the particulars of your property.
For a more in-depth look at the list of ‘fees, charges, and taxes’ involved in getting a mortgage, check out this free guide from MoneySavingExpert.
Can I get a mortgage with bad credit?
When assessing mortgage applications, lenders ask for financial information and carry out credit checks to gain a solid understanding of how each applicant manages their finances. This will inform their decision on each applicant’s mortgage eligibility and whether or not they can afford the repayments on the amount they’re looking to borrow.
A bad credit rating does not make it impossible to get a mortgage. But, it does make it more difficult to get accepted. For starters, many lenders will not offer mortgages to those with a record of:
- Adverse credit history
- Missed/late payments
- Pay day loans
- County court judgements (CCJs)
- Debt management plans
Depending on when such debts or credit issues occurred, certain high-street lenders may be unable – or unwilling – to lend given the circumstances. However, the good news is that we have access to a plethora of specialist lenders who will consider more recent debt issues and may take a different view based on your personal circumstances. Of course, rates may be inflated to reflect the increased risk to the lender, but this demonstrates that options are available.
It’s also important, particularly if you’re a contractor or self-employed, to review your credit file and ensure all your information is correct and up-to-date. It may be that you have a reasonable explanation (in the eyes of the lender, at least) for previous financial difficulties, such as the pandemic or a period of poor health. It’s important that you make sure the lender is aware of any extenuating circumstances like this. Having information like this to hand at the beginning of your process will make it easier for us to identify the right lender/s for your circumstances.
Is Danbro Financial Planning’s mortgage advice independent?
Yes, Danbro Financial Planning’s mortgage and financial advice is compliant, high-quality, and completely independent.
We can provide whole of market advice because we’re not tied in to any particular agents. Nor are we restricted in terms of which lenders we can work with. Our specialist team have a good perspective on the market, as well as longstanding relationships with a host of lenders. This means you’ll have access to the very best deals with a degree of care and information that you wouldn’t receive on a price comparison site. And, as a former Underwriter herself, our Mortgage and Protection Specialist, Sharon Kennedy, is perfectly placed to be able to assess your eligibility through the eyes of a lender, and construct your application accordingly.
What’s more, we’re a key part of the Danbro family. So, we understand how contractors and umbrella company employees work. We regularly liaise with our partners in both accountancy and payroll to provide holistic advice under one roof.
We’ll work to ensure your mortgage and protection plans complement your financial targets. And, with access to lenders across the market, we can independently broker the best mortgage deal for you and your family.
Our job is to help you find a suitable contractor mortgage - or re-mortgage - deal that befits your circumstances, your budget, and your ambitions.
Your job? Your job is to work out what you want and let Danbro Financial Planning help you find your way home.
Your home may be repossessed if you do not keep up repayment on your mortgage.
The Financial Conduct Authority does not regulate Buy-to-Let Mortgages.
Danbro Financial Planning Limited is an appointed representative of the Sense Network Limited, which is authorised and regulated by the Financial Conduct Authority. Danbro Financial Planning Limited is entered on the FS Register (www.fca.org.uk/register) under reference 796167. The information contained within this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK.
The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services business aren’t able to resolve themselves. To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk.
Sam Wright is Danbro’s Marketing Manager. He produces regular content and feature articles on our digital and non-digital channels – and social platforms – for the Danbro Group and its subsidiaries, as well as having responsibility for the Company’s internal and external communications.
His background is in Journalism and Creative Writing, having previously contributed to publications such as The Daily Post, The Lancashire Evening Post, and The Blackpool Gazette.
He is a keen swimmer and avid Manchester United fan (but don’t hold that against him), and he lives in Lancashire with his wife, Sarah.