For contractors, getting a mortgage may seem slightly more complicated for contractors, especially when they’re working under a limited company rather than an employee. The primary difference is in the way lenders determine income. In addition to viewing a payslip, lenders will also take into account the contract history, day rate, company structure, salary, dividends and overall financial stability. But for contractors with proven professional career, there are special mortgage options.
Limited company contractor mortgages are intended for professionals who offer services under their own limited company. This type of organisation is prevalent among companies that specialise in certain areas such as IT, engineering, financial services, healthcare, consultancy etc.
Instead of automatically treating the applicant as a conventional self-employed borrower, some lenders take a more flexible approach. Based on their criteria they may assume the existing contract and day rate to establish an annualised income. Others may be interested in salary and dividends from the limited company.
This is the difference which could mean that a contractor's borrowing assessment with one lender might differ significantly from another.
One of the most crucial components of a contractor mortgage application is income assessment. Some lenders will apply a day-rate calculation which will determine the earnings of the contractor based on the number of working days in a year. This can potentially produce a stronger affordability assessment for contractors with a high and consistent day rate.
Other lenders can consider salary and dividends as they would with a typical self-employed application. This will depend on the lender's requirements and the contractor's situation.
A specialist mortgage adviser can guide you in selecting lenders with a more flexible approach to income assessment for a limited company contractor.
Yes, contract history can be an important consideration and lenders may take a look at the length of time you have been contracting, your industry experience and also whether you have actually had a steady work history.
Even if you have a short time between contracts, it doesn't mean you can't get a mortgage. Some lenders may be more flexible, if you have a solid contracting track record.
Those who have recently moved from permanent to contracting employment might need a more well-defined contract application as the contracting experience may be limited.
Lenders will ask for various documents, depending on their requirements and their method of determining the contractor's income. Having the necessary paperwork ready can help make the application process more straightforward.
You may be asked to provide:
Current contract
Previous contracts
Company accounts
Bank statements
Tax documentation
Proof of identification and address
Evidence of deposit
The contractor mortgage market has changed, with specialist lenders offering different ways to assess contractor income. Lenders will differ widely on their assessments of day rates, company income, contract history and employment gaps.
Therefore, engaging the services of a mortgage adviser who is familiar with limited company contractors will allow you to find a mortgage that's appropriate and avoid applying for a mortgage with lenders who may not meet your requirements.
Limited company contractors have access to mortgage solutions, but they may need to apply in a slightly different way to traditional employment-based mortgages. Knowing what lender day rates, contracts, salary and dividends are in terms of them, will help you put together a stronger application.
If you are interested in limited company contractor mortgages, AWS Private Finance can help you with specialist advice, depending on your situation and guide you through the process of exploring potentially eligible mortgage products.
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