Contractor mortgage broker: lending on your day rate
If you're a contractor, high street lenders often look at the salary and dividends on your tax return and offer far less than you can afford. A specialist contractor mortgage broker knows the lenders that will assess your mortgage based on your contract day rate instead. We help limited company, umbrella and fixed-term contractors across Northamptonshire, Bedfordshire and the UK.
Is it hard to get a mortgage if you are a contractor?
Getting a mortgage as a contractor can be more challenging than for an employee, but it is far from impossible. The problem is usually not your income. It is how a mainstream lender reads it.
Many contractors pay themselves a small salary and take the rest as dividends, leaving profit in the company. On paper, that can make a £90,000-a-year contractor look like they earn £40,000. Some lenders also want two or three years of accounts, which a new contractor does not have, or they worry about gaps between contracts.
Contractor-friendly lenders see contractors differently. They look at your current contract, your day rate and your track record in your field. With the right lender and a well-presented contractor mortgage application, contractors secure a mortgage every day, often at the same competitive mortgage rates as employees.
How do lenders assess contractor income?
There are three main ways lenders appraise contractors, and the one they use makes a huge difference to how much a contractor can borrow.
Day rate method
Specialist lenders annualise your contract rate. A common formula is day rate × 5 days × 46 or 48 weeks. For example, £500 a day × 5 × 46 weeks gives an annual income of £115,000, which is then used for mortgage affordability. Hourly rates are annualised in a similar way.
Salary and dividends
Some lenders treat limited company contractors as self-employed and use salary and dividends from your SA302 tax calculations, averaged over one to two years. That works well if you draw most of your profit, but badly if you leave money in the company.
Salary and retained profit
A smaller number of lenders will add your share of net profit left in the company to your salary. This can help established contractors with strong accounts.
A specialist broker knows which contractor mortgage criteria each lender uses and matches you to the right lender from the start, rather than applying and hoping.
Mortgages for every type of contractor
Every type of contractor is treated a little differently by the mortgage market.
- Limited company contractor. The most common set-up. Many lenders will use your day rate, often with just a current contract and a year or less of contracting history.
- Umbrella contractor. Paid through an umbrella company via PAYE. Some lenders use your payslips; others still prefer the gross contract rate, which is usually higher.
- Fixed-term contract employees. Paid through PAYE on a fixed-term contract, common in the NHS, IT, engineering and education. Many lenders will annualise your pay if you have a track record of renewals.
- Inside IR35 contractors. If your contract falls inside IR35, you are taxed like an employee. Contractor-friendly lenders will usually still lend on your gross day rate.
- CIS contractors. Construction workers paid under the Construction Industry Scheme have their own lender criteria. See our CIS mortgages guide.
- Freelancers and sole traders usually fall under our self employed mortgage broker service.
How much can I borrow as a contractor?
Most lenders will lend around 4 to 4.5 times your annual income, and some go up to 5 or 5.5 times for higher earners or certain professions. The key question is which income figure they use.
Same person, same income, very different mortgage options. That is why working with a specialist matters. Every figure here is illustrative only; actual borrowing depends on your commitments, credit history and the lender's affordability checks.
Lender using salary and dividends
£12,570 salary plus £40,000 dividends = £52,570 × 4.5 = around £236,500.
Lender using your day rate
£500 a day annualised to £115,000 × 4.5 = up to around £517,500.
Can I get a 200k mortgage on a 40k salary?
At 4.5 times income, £40,000 supports borrowing of around £180,000. A few lenders stretch to 5 times, which would reach £200,000, subject to affordability, low outgoings and a clean credit record. For contractors, the more important point is that your real income may be far higher than £40,000 if a lender uses your day rate rather than your salary.
Find out what you can really borrow
Book your free callWhat do lenders need from a contractor?
Contractor mortgage lenders typically ask for:
- your current contract, showing your day rate and end date, often with at least a few months remaining;
- evidence of your contracting history, commonly 6 to 12 months, or less if you worked in the same field as an employee before;
- recent bank statements showing contract income;
- a CV or LinkedIn profile to show continuous work in your field;
- proof of deposit, ID and address;
- for some lenders, SA302s and tax year overviews, or company accounts.
Do contractors need a larger deposit?
Not necessarily. Many contractor-friendly lenders offer mortgages at 90% and even 95% loan to value, so a 5% or 10% deposit can be enough. A larger deposit will usually give you access to the best rate and more lenders. First-time buyers who are contractors can use the same schemes as anyone else.
How does IR35 affect a contractor mortgage?
IR35 is the set of tax rules that decides whether a contractor is genuinely in business or is, in reality, working like an employee. Since the off-payroll working rules were extended to the private sector in April 2021, medium and large clients decide your IR35 status for each contract, and many contractors now work inside IR35.
For mortgage purposes, IR35 status matters less than people fear. A contractor-friendly lender using the day rate method will usually look at your gross contract rate whether you are inside or outside IR35. Where it can matter is with lenders who use your payslips or tax calculations: working inside IR35 through an umbrella company can reduce your take-home pay, and a lender using net figures may offer less. If your status has changed recently, tell us, because it affects which lenders are the right fit.
Are mortgage rates higher for contractors?
Usually not. Contractors who meet a lender's criteria get access to the same mortgage rates as employed borrowers with the same deposit and credit record. Many high street lenders now have a contractor mortgage policy of their own, and some of the best contractor mortgage deals available come from mainstream banks that simply need the application presented correctly. Rates are higher only where a specialist lender is needed for a more complex case, such as a very new contractor, recent credit problems or an unusual property.
What about gaps between contracts?
Short gaps are normal in contracting, and most contractor mortgage lenders accept them. What lenders look for is a consistent pattern of work in the same field, with gaps of a few weeks rather than several months. If your contract is ending soon, a renewal letter or a new signed contract usually solves the problem. If you are between contracts at the moment, it is often better to wait until the next one is signed before you apply for a mortgage, and we can help you time it.
Is it harder to get a mortgage when you are self-employed?
It can be, mainly because lenders need more evidence and more time to assess your income. Contractors sit between employees and the self-employed: many lenders treat a limited company contractor as self-employed, but specialist lenders treat you more like an employee on a high salary. That is the gap a specialist contractor mortgage broker bridges.
Protecting your mortgage as a contractor
Contractors do not get sick pay from an employer, so an illness or injury that stops you working can stop your income overnight. Once your mortgage is arranged, we look at your mortgage and protection needs together: life insurance to clear the mortgage, and income protection that pays a monthly benefit if you cannot work. For limited company contractors, cover can sometimes be paid for by the company, such as executive income protection or relevant life cover, which can be more tax-efficient. You decide whether to take any protection further.
Why use a specialist contractor mortgage broker?
A general broker or a high street mortgage adviser may send your application to a lender that uses dividends, get a low figure and tell you that is all you can borrow. A specialist mortgage broker who understands contracting will:
Know the lenders
Which lenders use day rates, and their exact contractor mortgage policy.
Search wider
The wider mortgage market, including many specialist lenders that work only through brokers.
Package it properly
Your contractor mortgage application presented so the underwriter sees the full picture first time.
Manage the process
The mortgage application process from agreement in principle to mortgage offer, and every call to the lender in between.
Working with a specialist broker like us means fewer declined applications, which protects your credit file, and a better chance to secure a competitive mortgage.
Contractor mortgages explained: quick answers
Can I get a contractor mortgage with only one contract?
Yes. Some lenders will consider you from your first contract if you have prior experience in the same field.
Can I remortgage as a contractor?
Yes. Contractors can remortgage onto a day rate lender to release equity or get a better rate.
Can contractors get buy-to-let mortgages?
Yes, including through a limited company, although rental income rules apply.
Is there a contractor mortgage calculator?
A calculator gives a rough idea, but the result depends on which income method a lender uses. A quick call with us gives a more reliable figure.
Can I get a mortgage if I have just moved from permanent work into contracting?
Often, yes. If you are doing the same kind of work you did as an employee, several lenders will accept you from the start of your first contract.
Will a lender contact my agency or client?
Some lenders ask to verify your contract with the agency or end client. It is a routine check and we will tell you in advance if it is likely.
What if my contract has less than three months left?
Many contractor mortgage lenders want to see a few months left on your current contract, or evidence that it is likely to be renewed. If yours is close to its end date, a renewal letter from your agency or client, or a newly signed contract, usually satisfies the underwriter. We can also point you to lenders who focus more on your track record in the industry than on the time left on one contract.
Can two contractors apply for a joint mortgage?
Yes. Lenders assess each applicant's income using their own method, so two limited company contractors, or one contractor and one employee, can apply together. It is worth checking that the chosen lender uses the day rate method for both of you, otherwise one income may be counted far lower than the other.
How long does a contractor mortgage application take?
Once your documents are ready, an agreement in principle can often be arranged within a day or two, and a full mortgage offer typically follows within two to four weeks. Contractor cases can take a little longer if the lender asks to verify your contract with the agency or end client, so we build that into the timeline.
Talk to a contractor mortgage specialist
Book a free call. We will look at your contract, your day rate and your plans, and show you what you can realistically borrow.
Book your free mortgage callYour home may be repossessed if you do not keep up repayments on your mortgage. This page is general information, not a personal recommendation.