Contractor Mortgages – based on your contract rate alone

Can a first-time contractor get a mortgage if they don’t even have company accounts yet?

How does the mortgage application process work?

As a first time contractor, you would traditionally have had to hold off on your goal of home-ownership until you had built up 2-3 years’ worth of accounts, but contractor-friendly lenders will simply require a copy of your current contract, three months’ bank statements, photo ID and a utility bill for proof of address.

As long as you can produce these documents, a specialist broker can often secure a mortgage on day one of your first contract, so there is no need to wait to buy your new home or remortgage.

Read our dedicated article – how does the mortgage application process work.

If you are applying direct to the lender then they may charge a premium depending on what your accounts show and how long you have been contracting, or they may demand that you pay a higher deposit.

However, the contract based underwriting that our partner CMME has negotiated with these High Street lenders allows you to access the same rates as your permanent colleagues, because they have an extensive history of preparing their clients applications correctly and only submit cases that they know will meet the lender’s criteria.

As such, CMME have built up a level of trust with the underwriters that means they often have access to exclusive rates that are not available direct or through other brokers.

The answer is yes, however more competitive deals are usually available to borrowers with a minimum of 10% deposit.

If you are a contractor and have only got a 5% deposit, then a specialist lender can help in two ways either via the Help To Buy scheme where an additional 20% (40% in London) deposit is provided by a Government-backed loan scheme in order for you to purchase a new build property.

Or with lenders offering both 95% products and a contractor-friendly policy. Multiple High Street lenders are willing to lend using specialist contractor criteria to contractors with a 5% deposit.

Unsurprisingly, this depends on a number of factors, including:

• The size of your deposit.
• Your contract rate / other income.
• Any existing financial commitments you may have.
• Your credit rating.
• How many applicants there are.

However, in general, contractors should be able to borrow up to 5 times their annualised rate via our partner’s mortgage lenders.

Depending on your personal circumstances, there are a number of mortgage products on offer to contractors.

Your mortgage will either be fixed rate (where the interest rate remains constant over a fixed period of time), or variable rate (where the rate may change – such as when the Bank of England raises the base rate).

The majority of mortgages are repayment (where you repay part of the capital loan, plus interest each month). Interest-only mortgages are far less widely available these days, as the mortgage industry has had to tighten up its lending criteria following the credit crunch a decade ago.

There are many types of variable rate products available – including those which offer discounted, tracker, and capped rates.

Your mortgage broker will be able to present you with a variety of mortgage options. Make sure you know what the real cost of each option is, once you take any introductory fees, and other charges into account.

Read our dedicated article – what mortgage products are available to contractors.

• The higher the deposit you can raise, the more products will be available to you, and better rates of interest.
• Try to avoid lengthly gaps between contracts.
• Consider mortgage products which allow overpayments, without any penalties.
• Make sure you have all of your paperwork in place (ID, proofs of income, contracts) to minimise delays.
• Try to keep your credit rating strong – make sure you’re on the electoral roll, and don’t miss any credit payments.

For more, read our Top 10 contractor mortgage tips and Mortgage FAQ.