Can contractors get a mortgage with only six months' history?

Navigating the mortgage market as a contractor can be challenging, particularly when you have limited trading history. While many high-street lenders prefer applicants with two to three years of stable accounts, securing a mortgage with only six months’ contracting history is achievable, provided you approach specialist lenders and meet specific, stringent criteria based on your current contract and day rate.

Addressing the Question: How Can Contractors Get a Mortgage with Only Six Months' History?

The transition from permanent employment to contracting offers flexibility and often higher earning potential, but it introduces complexity when dealing with traditional mortgage applications. Standard lenders view limited trading history as high risk, often requiring 24 to 36 months of finalised company accounts or SA302 tax calculations.

However, the mortgage industry has evolved, recognising the professional stability of long-term contractors. For those with only six months of history, the solution usually lies with specialist lenders and building societies willing to assess your application using a “day rate calculation” method.

Understanding the Day Rate Calculation for Contractors

The day rate calculation is the most common route for contractors lacking extensive trading history. Instead of evaluating your past two years of company profits (which are often structured to minimise tax via low salaries and high dividends), lenders annualise your current earning potential.

This method treats you almost like a high-earning, permanent employee, focusing on the security of your existing contract and your professional track record preceding the contracting role.

How Lenders Calculate Your Income

If a lender accepts your application based on your day rate, they typically follow this formula:

• Daily Rate x Number of Days Worked Per Week x 52 Weeks = Annual Gross Income

Crucially, lenders rarely assume you work 52 full weeks per year. They account for necessary breaks, holidays, and bench time. A standard calculation often uses 46 or 48 working weeks per year. For example, if your day rate is £500, a lender might use: £500 x 5 days x 46 weeks = £115,000 assumed annual income.

This calculated annual income is then used in their standard affordability assessment, factoring in outstanding debts, dependants, and other financial commitments.

What Do Specialist Lenders Require at the Six-Month Mark?

While you may only have six months of contracting experience, lenders need assurance that your career and income are stable. To approve a mortgage based on such limited history, you typically need to demonstrate several key factors:

1. Previous Professional Experience

Lenders need to see that the contracting role is a natural continuation of a successful career, not a brand-new venture. If you were employed in the same sector immediately prior to contracting, lenders are much more comfortable. They typically look for at least two years of relevant experience in total (combining employed and contracted time).

2. Contract Strength and Duration

The contract you currently hold must be robust. Lenders prefer:

• A contract with a significant remaining term (e.g., three to six months remaining).
• Evidence of previous renewals or a strong likelihood of renewal, often evidenced by a history of successful contracting in your sector.
• A daily rate that is clearly sustainable and verifiable.

3. Required Documentation and Evidence

To support an application based on a six-month history, be prepared to provide extensive documentation. This usually includes:

• Copies of your current and previous contracts, showing the day rate and duration.
• Your CV, demonstrating continuity in your field of expertise.
• Bank statements (usually three to six months) showing consistent receipt of contract payments.
• Proof of identity and address (as standard).

The Role of the Broker in Securing Contractor Mortgages

For contractors with limited history, attempting to secure a mortgage directly with a mainstream lender is often time-consuming and likely to result in rejection. Specialist brokers are invaluable because:

• They understand the nuances of contractor income, including how pay is split between salary and dividends if you operate via a Limited Company.
• They have relationships with niche lenders and regional building societies that do not typically offer day-rate mortgages through the high street.
• They know exactly which documentation is required and how to present your professional history to meet specific lending criteria, saving you multiple failed applications.

For those operating through a Limited Company, a broker can also help navigate the complexities of affordability where drawn income (salary + dividends) may be low, but retained profits are high. A specialist lender may agree to use the gross turnover or retained profit figures for assessment, whereas a high-street bank will likely only look at the income you drew as taxable salary.

The Impact of Credit History

Regardless of your income structure, your credit history remains a foundational element of any mortgage application. With limited trading history, lenders may scrutinise your personal finances even more closely to mitigate perceived risk.

Ensure you check your credit file for any discrepancies, defaults, or County Court Judgements (CCJs) before applying. Addressing these issues early can significantly improve your chances of securing a competitive rate.

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It is also beneficial to demonstrate stability in your financial management, such as being registered on the electoral roll and maintaining reliable repayment records on existing credit commitments.

Risks and Considerations for New Contractors

While specialist mortgages make lending accessible, it is important to be aware of the potential risks and trade-offs:

• Higher Interest Rates: Because lenders perceive limited trading history as higher risk, the interest rates offered on specialist contractor products may be marginally higher than those available to applicants with two years of full accounts.
• Deposits: You may need a larger deposit (e.g., 15% or 20% rather than 5% or 10%) to access the most favourable rates available to new contractors.
• Stress Testing: Lenders will stress test your affordability, ensuring you could still afford the repayments if interest rates were to rise.

Before committing to any mortgage agreement, ensure you fully understand the terms. The UK Government provides excellent, unbiased guidance on what to expect when applying for a mortgage, which can be found on sites like MoneyHelper.org.uk.

People also asked

How long do I need to be contracting to get the best mortgage rates?

Generally, you need at least two years of finalised company accounts or proof of sustained contracting income over 24 months to access the most competitive standard mortgage products offered by high-street lenders. If you have less than a year, you will likely need to use specialist products which may carry higher rates.

Is it easier to get a mortgage if I use an Umbrella Company?

Yes, often. If you contract through an Umbrella Company, you are typically treated as a standard PAYE employee, receiving a salary slip (payslip). This simplifies the application process significantly, as lenders can use your gross annual income shown on the payslip, bypassing the complex day rate calculations required for Limited Company directors.

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

While an accountant is not mandatory for the application itself, having one is highly advisable, especially if you operate a Limited Company. An accountant ensures your financial documentation is accurate, compliant, and correctly prepared to support the lender’s affordability assessment.

What percentage of my day rate will a lender use for affordability?

Specialist lenders typically use 80% to 100% of your annualised income (calculated using the day rate multiplied by 46–48 weeks) for affordability purposes, assuming they accept the day rate methodology. This is the figure against which they calculate the maximum loan amount you can afford.

Can I use my retained profits as a Limited Company contractor?

Yes, certain specialist lenders will allow Limited Company directors to use their share of the company’s retained profits (the money left in the business after tax and dividends) as part of their verifiable income for a mortgage application. This approach is usually inaccessible via mainstream banks.

Conclusion

Securing a mortgage as a contractor with only six months of trading history requires focused strategy and professional guidance. By demonstrating stability in your previous career, providing evidence of a strong, current contract, and engaging with specialist mortgage brokers, you can successfully navigate the market and achieve property ownership.

Always remember that any mortgage is a significant financial commitment. If you are seeking alternative secured finance, such as a bridging loan, be aware of the associated risks. Your property may be at risk if repayments are not made. Failure to meet repayment schedules can lead to legal action, repossession, increased interest rates, and additional charges, so always ensure you have a robust exit strategy in place.