Are contractor remortgages easier to get?

For contractors in the UK, navigating the mortgage market can often feel challenging, particularly when remortgaging. While traditional lenders frequently struggle to accommodate non-standard income structures, the market has evolved significantly. The crucial question is not whether they are easy, but whether the process is simpler than a standard mortgage application.

Understanding If Contractor Remortgages Are Easier To Get

The short answer is that contractor remortgages are generally not easier than those for applicants with standard employment (PAYE). However, for experienced contractors, the process is far less burdensome today than it was a decade ago, thanks to the rise of specialist lenders. The ease of the application process hinges entirely on how your income is verified and the criteria set by the lender you approach.

Traditional high-street lenders are structured to assess risk based on fixed, predictable annual salaries, typically requiring two or three years of audited accounts or self-assessment tax returns (SA302s) to prove income stability. Since many contractors structure their finances via limited companies to draw minimal salary and maximise dividends (or retain profit), their declared taxable income often looks insufficient to service a mortgage.

The Day-Rate Calculation: The Key to Simplicity

The primary factor that makes remortgaging manageable for contractors is the increasing willingness of specialist lenders to use a ‘day-rate calculation’ rather than relying on declared taxable income.

A specialist lender understands that a contractor’s income stability is based on the contract itself, not necessarily the net profit extracted from the business. They typically annualise your day rate to determine your gross income for affordability purposes. This can dramatically increase the maximum loan size you qualify for compared to a traditional assessment.

How Specialist Lenders Assess Contractor Income

When assessing affordability for a remortgage, the following calculation is typically used by contractor-friendly lenders:

• Daily Rate x Number of Working Days Per Year (e.g., 220–240 days) = Annualised Income.

This annualised income figure, rather than your taxed income, is then used in standard affordability checks (taking into account debts, existing mortgage, and living expenses). This method streamlines the process and avoids the complex requirements for deep-dive auditing of limited company accounts.

Eligibility Requirements for a Smoother Remortgage

While the day-rate calculation simplifies the affordability step, contractors must still meet strict criteria regarding their professional history and contract structure to qualify for these easier routes:

1. Consistent Contracting History

Lenders need proof of stability. Typically, they require a minimum track record, often:

• At least 12 months (and often 24 months) of contracting history in the same field or industry.
• Proof that your contracts are renewed regularly, showing minimal gaps in employment over the previous year.

2. Contract Structure and Duration

Your current contract is paramount. Lenders will generally require:

• The contract to be written in sterling (£).
• A minimum duration remaining on your current contract, often at least three or six months.
• If the current contract is short, evidence of previous similar contracts with renewal history may be accepted.

3. Minimum Daily Rate

Some specialist lenders impose a minimum daily rate (e.g., £300–£350) to ensure the contractor is operating at a professional level that justifies the stability of their income stream. If you work via an umbrella company, the structure of the payments must be clearly defined for the lender.

Preparing Your Application: Documentation and Credit Health

Even with specialist lenders, documentation is key. The smoother the application, the quicker you can secure your new rate. You will need to prepare comprehensive proof of identity, address, and income. For general guidance on different types of mortgages available, including specialist options, you may find information provided by organisations like MoneyHelper helpful.

Key documents required typically include:

• Proof of identity and address (passport, driving licence, utility bills).
• Current contract signed by both you and the client/agency.
• Evidence of previous contracts showing continuity.
• Bank statements (usually three to six months) showing consistent income deposits.
• P60s or documentation proving income received, even if minimal salary has been drawn.

The Role of Your Credit Score

Regardless of how you earn your money, your personal credit history remains central to any remortgage application. Lenders will perform stringent checks to assess your reliability in handling credit.

A strong credit score demonstrates that you manage existing debt responsibly, pay bills on time, and are a low credit risk. Conversely, defaults, County Court Judgements (CCJs), or a history of missed payments will complicate and potentially derail even the simplest contractor remortgage application.

Understanding what is contained in your credit file is the first step towards a successful remortgage. You can check your credit report and scoring before applying: 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)

Working with a Mortgage Broker

If you are a contractor, using a specialist mortgage broker is often the primary way to make the remortgage process feel “easier.”

A broker specialising in contractor finance:

• Knows the Niche: They are aware of which specific lenders accept day-rate assessments and their precise criteria (e.g., minimum contract duration, minimum daily rate).
• Packages the Application: They know exactly how to structure the application and present your income documentation to meet that specific lender’s requirements, saving you time and reducing the chance of rejection.
• Saves Time: They prevent you from applying to mainstream lenders who would require full limited company accounts, leading to inevitable delays or rejections.

Potential Risks and Considerations

While specialist lenders simplify the income verification process, there are still commercial risks associated with contractor remortgages:

Affordability Stress Tests: All lenders, specialist or otherwise, must apply stringent stress tests as mandated by the Financial Conduct Authority (FCA). Even if your annualised income is high, the lender must confirm you could still afford repayments if interest rates were significantly higher.

Lender Fees and Rates: Specialist products designed for contractors may sometimes carry slightly higher arrangement fees or interest rates compared to the absolute cheapest mainstream mortgages, reflecting the non-standard nature of the borrowing. It is essential to compare the overall cost of borrowing, not just the headline interest rate.

Contractual Instability: If you have frequent gaps between contracts, or if you change sectors frequently, lenders may view your income as less stable, regardless of how high your day rate is.

People also asked

How is contractor income calculated for a remortgage?

For contractor-friendly lenders, income is usually calculated by annualising the current day rate (e.g., Daily Rate x 5 days a week x 48 weeks a year). This is often preferred over the declared salary and dividends from limited company accounts.

What if I run my business through a limited company?

If you run a limited company, you have two primary options: use a standard lender who requires two to three years of company accounts (assessing the average of salary and dividends), or use a specialist lender who will often disregard the company accounts in favour of the day-rate calculation.

What if I am paid via an umbrella company?

If you are paid via an umbrella company, lenders typically treat you closer to a standard employee, though they will focus on the continuity of employment and the total gross income figure shown on your payslips over the last 6 to 12 months, rather than the net income.

Do I need to have a contract in place before applying?

Yes, absolutely. To qualify for a contractor remortgage based on a day-rate assessment, you must have a current, signed contract clearly stating your daily rate and the terms of engagement. Lenders typically prefer contracts with several months remaining.

Will I pay higher interest rates as a contractor?

While specialist contractor products may sometimes sit slightly outside the cheapest introductory rates available to standard employees with low Loan-to-Value (LTV) ratios, the competition in the market means that contractor rates are now highly competitive and often comparable to standard fixed rates.

Summary

The question of whether contractor remortgages are easier to get boils down to choosing the right partner. If you approach a mainstream lender that insists on assessing income based on two years of tax returns for a limited company contractor, the process will likely be complicated and potentially lead to disappointment.

However, if you have a solid contracting history, a strong credit profile, and work with a specialist mortgage broker who directs you to a lender that uses the day-rate calculation, then the process of securing a remortgage can be significantly smoother, faster, and less documentation-heavy than a standard self-employed application.

Preparation and professional advice are key to simplifying the journey.