Can I remortgage if I’m now a contractor?

The transition from salaried employment to contracting offers greater flexibility and often higher earning potential, but it introduces complexities when dealing with mortgage lenders. If you are approaching the end of your current fixed-rate deal and need to remortgage your property, the change in your employment status requires careful preparation and understanding of how different lenders assess your income.

Remortgaging is entirely possible for contractors, but the critical challenge lies in satisfying the lender that your income is reliable, consistent, and sustainable for the long term. Standard high street lenders often rely on stringent criteria based on P60s or two to three years of finalised self-assessment tax returns, which may not accurately reflect the current income of a highly paid contractor.

How Lenders View Contractor Income

Lenders generally treat contractors differently depending on how they operate—whether through an umbrella company, as a sole trader, or via their own limited company. Your classification heavily influences the documentation required and the affordability calculation used.

The Challenge of Limited Company Contractors

If you operate through your own limited company, lenders typically look at the salary you pay yourself plus the dividends you draw. This can be problematic if you have adopted a tax-efficient strategy of retaining profit within the company, as the figures on your tax return might look low compared to your actual earning capacity.

• Traditional View: Many high street banks only assess income based on the declared salary and dividends, which might limit the maximum loan amount available.
• Specialist View (Day Rate Contractors): Specialist lenders often use a ‘day rate’ calculation. They assess your typical daily charge and multiply this by a standard number of working days per year (e.g., 46–48 weeks of 5 days). This provides a much clearer picture of your gross contract value.

Umbrella Company Contractors

If you are paid via an umbrella company, you are technically considered an employee of that company for tax purposes. While this simplifies tax administration, lenders may still view your employment as less secure than a standard permanent position. The assessment here often relies heavily on proving continuity of contracts and demonstrating stable earnings via payslips and contract history.

Minimum Requirements for Contractor Remortgaging

While requirements vary significantly between lenders, contractors generally need to demonstrate a strong track record and clear documentation to successfully secure a new mortgage deal. Key factors include:

1. Consistency of Contract Work

Lenders need confidence that your income stream will continue. Most will seek evidence that you have a consistent history of contracting, usually:

• A minimum of 12 months in the contracting field, sometimes 24 months.
• Proof of renewals or consecutive contracts, demonstrating demand for your skills.
• A significant amount of time remaining on your current contract (typically at least 3–6 months).

2. Necessary Documentation

Preparing a thorough application package is crucial. Depending on whether the lender uses the day rate or self-assessment approach, you may need to provide:

• Copies of your last 2–3 signed contracts, clearly showing the day rate, duration, and termination clauses.
• Bank statements (usually the last 3–6 months) showing consistent payments into your account.
• Evidence of earnings, such as detailed invoices or payslips if working via an umbrella company.
• If using a limited company, your company accounts (usually the last two years) and SA302 forms (or the equivalent tax year overview from HMRC). You can find detailed information on obtaining tax records on the GOV.UK website.

The Day Rate Calculation: A Contractor’s Advantage

For high-earning professionals, the day rate calculation is often the most advantageous route for remortgaging. This calculation allows lenders to disregard retained profits within a limited company and assess affordability based on the gross value of your contracts.

A typical calculation might look like this: Day Rate (£X) x 5 days/week x 46 weeks/year = Annual Gross Income for Mortgage Purposes (£Y).

It is important to note that only specialist lenders or high street providers with specific contractor underwriting teams will use this method. Working with an experienced mortgage broker who understands the contractor market can significantly increase your chances of finding a competitive deal that accurately reflects your earning power.

Preparing Your Application and Credit Profile

Before submitting your remortgage application, taking proactive steps to tidy up your finances and profile is essential, especially when your income structure is complex.

Check and Improve Your Credit Score

Lenders rely heavily on your credit file to gauge financial responsibility. Ensure there are no errors on your file and that all debts are managed appropriately. Registering on the electoral roll is a basic requirement.

You should review your file well in advance of 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)

Minimising Financial Instability

While contractors inherently face some level of instability compared to permanent employees, demonstrating robust financial management helps. Lenders will be wary of frequent periods of unemployment, large unexplained transactions, or high personal debt levels.

What If I Have Only Just Started Contracting?

If you have recently switched to contracting and have less than 12 months’ experience, remortgaging can be significantly harder, but not impossible. Standard high street lenders will almost certainly decline the application due to lack of history.

In this scenario, you may need to target niche lenders who specialise in newly self-employed or high-net-worth clients, or those who can accept a very short trading history (e.g., three to six months) if you can demonstrate a compelling track record in the same industry prior to the change, and have a high day rate.

Alternatively, if your existing mortgage provider offers a Product Transfer (staying with the same lender but switching to a new rate), this is often a much simpler process as they typically do not require the same level of rigorous underwriting that a full remortgage (moving to a new lender) demands.

People also asked

How long do I need to be contracting before remortgaging?

Most mainstream lenders require a minimum of two years of accounts or consistent contracting history. However, specialist lenders may accept contractors with as little as 6 to 12 months of experience, provided they have a long-term contract secured and a strong professional background in their field.

Do I need three years of accounts as a contractor?

No, while three years is often the benchmark for standard self-employed applicants, many lenders who understand the contractor market will accept just one year of accounts, or often base their decision purely on your current contract and day rate, completely bypassing the need for detailed company accounts.

Can I use my day rate instead of company profits for affordability checks?

Yes, this is the most effective approach for high-earning contractors who minimise salary and dividends for tax efficiency. You must locate a specialist lender or broker who uses the ‘gross contract value’ calculation to assess your affordability based on your daily charge.

What loan-to-value (LTV) ratio makes remortgaging easier for contractors?

Contractors generally benefit from having a lower LTV, meaning a larger equity stake in the property. Lenders are typically more flexible with income assessment if the LTV is below 80% or, ideally, 75%, as this reduces the risk profile of the loan.

Is it harder to remortgage if I work through an umbrella company?

Not necessarily harder, but different. While umbrella company workers receive P60s and payslips, lenders still need proof of continuity. They may scrutinise your contract end dates and renewal history more closely than if you were a permanent employee, seeking assurance that the flow of assignments is reliable.

Should I use a mortgage broker who specialises in contractors?

It is highly recommended. Specialist brokers have access to the niche products and underwriting contacts required to ensure your unique income structure is assessed correctly. They understand the difference between gross contract value and declared income and can streamline the documentation process.

Final Considerations for Contract Remortgaging

Moving from a fixed salary to contracting does not close the door on competitive remortgaging, but it requires strategy. The key is to manage your financial paperwork diligently and prepare your application well in advance of your existing deal expiring. By choosing a lender or broker who is accustomed to dealing with contractors, you can ensure your actual earning potential is recognised, enabling you to secure the funding you require.

Remember that while specialist products offer flexibility, they may sometimes carry higher interest rates or fees than standard residential mortgages, so always compare the total cost of the deal carefully.