Can contractors apply for the Right to Buy scheme?

The Right to Buy (RTB) scheme allows qualifying council or housing association tenants in England to purchase their home at a discount. While the eligibility criteria for the scheme itself focuses purely on tenancy history, contractors often face specific challenges when securing the necessary mortgage finance due to the variable nature of their income. Successfully applying for RTB hinges less on your status as a contractor and more on your ability to prove reliable, sustainable income to a specialist mortgage lender.

Can Contractors Apply for the Right to Buy Scheme? Understanding Eligibility and Finance

The short answer is yes, contractors can absolutely apply for the Right to Buy scheme, provided they meet the official eligibility requirements set by the government. The key distinction to understand is that the RTB application process is separate from the mortgage application process.

The Right to Buy scheme is designed to facilitate homeownership for long-term tenants. Your employment status—whether you are permanently employed, self-employed, or working as a contractor—does not impact your eligibility for the discount or the right to purchase the property.

Who is Eligible for the Right to Buy?

To qualify for the Right to Buy scheme, you must meet criteria related to your tenancy. Generally, you must be a secure tenant of a council or housing association and have spent a minimum qualifying period (usually three years) as a public sector tenant. You can find detailed, official information on the eligibility rules and the application process from the government website: Check your eligibility for the Right to Buy scheme on GOV.UK.

Once your eligibility is confirmed and the landlord agrees to sell, the real challenge begins for contractors: securing the mortgage finance needed to cover the purchase price, minus the RTB discount.

The Contractor’s Mortgage Challenge

Lenders typically prefer straightforward, employed applicants who can provide P60s and payslips demonstrating a consistent monthly salary. Contractors, however, often operate through limited companies, umbrella companies, or as sole traders, resulting in complex income structures that standard high-street lenders struggle to assess.

As a contractor seeking a mortgage for a Right to Buy property, you will likely need to approach specialist lenders or brokers who understand how to calculate affordability based on your unique circumstances.

How Lenders Assess Contractor Income

Lenders generally use two primary methods to assess a contractor’s income for mortgage affordability:

1. Day Rate Calculation (Specialist Route)

Many specialist lenders will bypass complicated company accounts and instead focus on your contract day rate. This is often the preferred route for contractors who have been trading for less than two years or who retain significant profit within their limited company for tax efficiency.

• Calculation: The lender annualises your day rate, typically multiplying the daily rate by 5 days, and then by 46 to 48 working weeks (allowing for holidays).
• Requirements: You usually need to demonstrate that you have a minimum length of continuous contracting experience (e.g., 6 or 12 months) and a confirmed contract (or evidence of renewal) that covers the next three to six months.

2. Company Accounts (Standard Route)

If you operate through a limited company and have been trading for several years, standard lenders may require two or three years of audited or certified company accounts. They will typically assess your affordability based on one of the following figures:

• Salary plus Dividends: The total income you officially drew from the company.
• Net Profit before Tax: Used by more generous specialist lenders who understand that contractors often retain profits to mitigate tax liabilities.

The challenge here is that contractors often minimise their drawn income (salary and dividends) to reduce personal tax, which can artificially lower their perceived affordability when using this traditional method.

Documentation Essential for Contractor Mortgages

Contractors applying for a mortgage, especially for a Right to Buy property, must be meticulous about documentation. Lenders need irrefutable evidence of the stability and longevity of your income stream. Key documents often requested include:

• Current Contract: Must clearly state the day rate, end date, and notice period.
• Contract History/CV: Proof of continuous work in the same field, typically spanning 12 to 24 months.
• Bank Statements: Personal and business statements (if applicable) showing income deposits.
• SA302s and Tax Overviews: If assessing income based on historical accounts (usually two to three years).
• Proof of Deposit: Even with the RTB discount, lenders usually require a small deposit (often 5% to 10%) based on the discounted purchase price, particularly if your credit history requires additional scrutiny.

The Importance of Your Credit Score

Your ability to secure a competitive mortgage rate is significantly influenced by your credit score and payment history. Before applying, it is vital to review your file for any inaccuracies or unexpected defaults.

Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

Key Steps for Contractors Applying for RTB

If you are a contractor interested in the Right to Buy scheme, follow these steps to maximise your chances of successful funding:

1. Confirm RTB Eligibility: Complete the official RTB application (RTB1 form) and wait for the landlord’s offer (Section 125 notice), which confirms the discount.
2. Engage a Specialist Broker: Standard high-street banks may not adequately assess contracting income. A broker specialising in contractor mortgages will know which lenders offer flexible criteria based on day rates.
3. Organise Documentation: Gather all necessary contracts, bank statements, and company accounts well in advance. Consistency is key.
4. Determine Affordability: Work with your broker to establish the maximum loan size you can realistically afford based on the discounted purchase price. Remember that the required mortgage amount is the purchase price minus the RTB discount.
5. Secure Agreement in Principle (AIP): Get preliminary confirmation from a specialist lender that they are willing to lend based on your contracting income.

Remember that the RTB discount itself acts as a substantial portion of your equity, often eliminating the need for a large cash deposit, which is a major advantage for first-time buyers or those with limited savings.

People also asked

How much deposit do contractors need for a Right to Buy mortgage?

Lenders typically require a deposit based on the discounted purchase price, not the full market valuation. Because the Right to Buy discount often constitutes significant equity (which lenders treat as your deposit), many contractors may only need a minimal cash deposit, often 0% to 5% of the discounted amount, depending on the lender and your credit profile.

Can a contractor apply for a joint Right to Buy mortgage?

Yes, contractors can apply for a joint mortgage with anyone else who is also named on the Right to Buy tenancy application, or even with a partner or family member who is not a tenant but who wishes to help secure the financing. Combining incomes can significantly increase the total amount you can borrow.

Do I need two years of accounts if I’m paid via a day rate?

Not necessarily. While traditional lenders usually demand two or three years of certified accounts, many specialist contractor mortgage providers will assess affordability using only your current contract and historical CV, calculating your income based on the annualised day rate, provided you meet minimum experience criteria (e.g., 6 to 12 months contracting history).

Does using an umbrella company simplify the mortgage application process?

Operating through an umbrella company can sometimes simplify the process compared to a limited company, as you technically receive a PAYE salary. However, lenders will still look closely at the underlying contracts and your history to ensure stability, treating you more like a contractor than a standard employee, though the documentation is often less complex than providing full company accounts.

Is the Right to Buy discount guaranteed if I am eligible?

If you meet all the official government criteria for tenancy length and type of property, your right to buy the property at a discount is established by law. However, the final discount amount is subject to complex calculations based on tenancy length, property value, and maximum regional limits, and is confirmed only after the Section 125 valuation notice is issued by your landlord.