Can contractors use government mortgage schemes?

Securing a mortgage can be complex for UK contractors due to their non-traditional income structure. This article clarifies the relationship between contracting work and eligibility for government-supported homeownership initiatives, detailing the specific documentation and lender requirements you will typically encounter.

Can Contractors Use Government Mortgage Schemes?

The short answer is yes, contractors can absolutely use government mortgage schemes, provided they meet the eligibility criteria for both the scheme itself and the mortgage required to fund the purchase. Government schemes are designed to help specific groups of UK residents purchase property, but they rarely impose blanket exclusions based purely on employment status (such as being a self-employed contractor).

However, while the government scheme criteria may not block you, securing the mortgage finance required under that scheme presents unique challenges for contractors compared to permanent PAYE employees.

Understanding UK Government Mortgage Schemes and Contractor Eligibility

In the UK, government schemes are typically focused on helping buyers with specific financial needs (like requiring a smaller deposit or needing assistance with affordability). The most relevant schemes that contractors may utilise include:

Shared Ownership

Shared Ownership is one of the most prominent ongoing schemes. It allows you to buy a share of a property (usually between 10% and 75%) and pay rent on the remaining share to a housing association. Contractors are often excellent candidates for Shared Ownership because, although their income may be high, their deposit levels might be constrained, or the mortgage required for a full purchase might be too high for mainstream lenders.

Eligibility for Shared Ownership typically revolves around being a first-time buyer, or a former homeowner who can no longer afford to buy on the open market, and falling below a household income cap (usually £80,000 outside London, or £90,000 in London).

Help to Buy Equity Loan (Phased Out)

While the main Help to Buy Equity Loan scheme in England ended for new applications in March 2023, previous participants may still need to remortgage or sell under the existing terms. If you are a contractor involved in a previous scheme, lenders assessing your eligibility for remortgaging will apply the same stringent income checks they would for a new application.

First Homes Scheme

The First Homes scheme offers a minimum 30% discount on the market price of a new-build home. Similar to other schemes, contractor eligibility is determined by local authority criteria (often requiring the buyer to be a local resident or key worker) and, critically, the ability to secure a mortgage for the discounted purchase price.

For official guidance on these schemes and their specific regional availability, please consult the relevant government resource, such as the guidance provided on affordable home ownership schemes.

How Contractors Prove Affordability to Lenders

The central difficulty for contractors is proving to the mortgage lender that their income is stable, predictable, and sufficient to cover repayments, especially when applying for a mortgage that forms part of a government scheme.

Lenders generally assess contractor income using two distinct methods:

1. Assessment Based on Day Rate (Specialist Contractor Mortgages)

Many specialist and contractor-friendly lenders are willing to base affordability calculations on your current contract day rate, rather than requiring two or three years of complex company accounts. This is often the preferred route for higher-earning contractors who operate through a limited company but pay themselves via a low salary and dividends.

• Calculation Method: Lenders typically take your gross daily rate and multiply it by a fixed number of working weeks per year (often 46 to 48 weeks) to arrive at a presumed annual income figure.
• Requirement: You usually need a robust track record of contracting (often 12 to 24 months) and proof that your current contract has significant remaining time (e.g., three to six months), or that you have a confirmed extension or a new contract lined up immediately after.

2. Assessment Based on Company Accounts (Standard Self-Employed Mortgages)

If you apply to a standard high-street lender, or if your contracting history is shorter or less predictable, they will likely treat you as a standard self-employed applicant. This means they will assess affordability based on the average of your profit (salary plus dividends, or net profit if a sole trader) over the last two or three financial years.

• Required Documentation: You will typically need full company accounts, HMRC tax calculations (SA302 forms), and corresponding tax year overviews for the required period.

Since government schemes often aim to minimise risk for the lender (as the schemes themselves provide a level of security, such as the government owning part of the equity), lenders are even more meticulous about verifying the stability of your income when dealing with these applications.

Key Challenges and Mitigation Strategies for Contractors

While contracting offers flexibility, it creates specific financial evidence issues that need to be addressed before applying for any mortgage scheme:

Contract Gaps and Continuity

Lenders are acutely focused on the risk of unemployment. Significant or frequent gaps between contracts can jeopardise an application based on day rate income. Contractors should aim to demonstrate continuity—either through a history of immediate back-to-back contracts or by having a clear reason for any breaks (e.g., parental leave, sabbatical).

Deposit Requirements

Although government schemes aim to reduce the initial deposit required (especially Shared Ownership), contractors may find that specialist lenders require a slightly higher deposit (perhaps 15% or more) to offset the perceived risk associated with their income structure. This is highly lender-specific, however.

Managing Your Credit Profile

A pristine credit history is essential, especially when applying for schemes or using specialist lenders. Any adverse credit events could complicate an application based on non-standard income verification. Ensure you know exactly what your credit profile looks like before applying.

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The Importance of Using a Broker

For contractors using government schemes, relying on a mortgage broker who specialises in contractor mortgages is usually advisable. These brokers know which lenders accept day-rate assessments, which offer high loan-to-value (LTV) ratios compatible with scheme requirements, and how to present your contract history in the most favourable light to underwriters.

Compliance and Risk Considerations

When entering into any mortgage agreement, including those facilitated by government schemes, you must understand the financial commitment. If you use temporary or bridging finance (which some contractors use to quickly secure a deposit or handle property transitions), be mindful of the terms. Bridging loans typically roll up interest, meaning monthly payments are uncommon, but the entire principal and interest must be repaid by the end of the term.

If you fail to make repayments on a secured loan, particularly if that mortgage is your primary residence or involves an element of shared equity, your property may be at risk if repayments are not made. Consequences of default can include legal action, repossession, increased interest rates, and additional administrative charges.

People also asked

Is Shared Ownership harder for contractors to access than a standard mortgage?

Shared Ownership is not inherently harder, as the scheme’s eligibility criteria are the same for contractors as for PAYE employees. However, securing the specific mortgage needed to buy the share is often more challenging, as lenders scrutinise contractor income carefully to ensure the rent and mortgage payments are sustainable over the long term.

Do all lenders accept income calculations based on a contractor’s day rate?

No, the majority of high-street lenders prefer to use the standard self-employed route, basing affordability on net profit, salary, and dividends shown in tax returns (SA302s). Only specialist lenders, or dedicated contractor arms of major banks, will typically accept calculations based on multiplying the day rate by 46–48 weeks.

What is the minimum contract history required to qualify for a contractor mortgage under a government scheme?

While it varies, most contractor-friendly lenders require a minimum of 12 months of continuous contracting history. Some niche lenders may consider applicants with only six months of history, provided they have significant prior experience in the same industry and a robust future contract lined up.

Can I use a government scheme if I am a director operating a limited company?

Yes. Many contractors operate as directors of their own limited companies. You are eligible for government schemes, but the lender will require substantial evidence of the company’s financial stability. You will be assessed either on the average of your drawn income (salary plus dividends) over two to three years, or via the specialist day-rate calculation method.

Do I need an accountant to apply for a contractor mortgage?

While not strictly mandatory, having an accountant who specialises in contractor finance is highly recommended. They can structure your accounts in a way that maximises the income lenders will accept, or provide letters confirming your income and contract stability, which significantly smooths the underwriting process.

Conclusion

Contractors are firmly within the scope of eligibility for UK government mortgage schemes, provided they satisfy the financial criteria. Success relies heavily on choosing the right lender who understands how to assess non-traditional income. By compiling a detailed history of your contracts, maintaining a stable income pattern, and using specialist advice, contractors can effectively leverage schemes like Shared Ownership to achieve homeownership.