Can I switch mortgage providers as a contractor?

As a contractor, switching mortgage providers—a process known as remortgaging—is certainly possible, but it often requires navigating a more complex application process than that faced by standard employed individuals. Lenders need assurances regarding the stability and consistency of your income, meaning specialist evidence and a strong track record of continuous contracts are typically essential for a successful switch.

The Process and Requirements: Can I Switch Mortgage Providers as a Contractor?

Switching your mortgage provider—or remortgaging—is a crucial step for many UK homeowners looking to secure better rates, release equity, or manage their finances more effectively. However, if your income is derived from contracting, the application process presents unique challenges because your earnings are often viewed as less stable than a permanent salary.

The key to success lies in understanding how lenders view your income structure and presenting robust evidence of continuous earning potential.

Contractor Mortgage Switching: The Basics

The fundamental process of remortgaging remains the same regardless of your employment status: you seek a new loan to pay off your existing mortgage. Where contractors differ significantly is in the affordability assessment.

Standard lenders typically use your P60 or payslips to calculate income. For contractors, especially those working through their own limited company or operating on fixed-term contracts, this straightforward documentation may not reflect your true earnings potential. Consequently, many high street lenders require two or three years of fully audited accounts and tax returns (SA302s), which can be restrictive if you have only recently started contracting or if your net profit appears low due to smart tax planning.

Why Contractors Need Specialist Lenders

Most mainstream lenders categorise contractors alongside self-employed applicants, leading to demanding criteria. However, a growing number of specialist lenders and building societies recognise the high earning potential and reliability of certain professional contracts (e.g., IT, finance, engineering).

These specialist providers often use “contract-based underwriting.” This means they calculate your annualised income based on your current day rate or fixed contract value, rather than relying solely on retained profits shown in historical accounts. This approach significantly increases your potential borrowing capacity when you switch providers.

Key Challenges Contractors Face When Remortgaging

While contracting offers flexibility, it creates specific hurdles when trying to switch mortgage providers:

• Track Record: Most lenders require you to demonstrate a minimum track record of contracting history, often 12 to 24 months, to prove stability.
• Gaps Between Contracts: Periods without contracts can raise red flags. Lenders typically prefer applicants who have had no significant breaks (usually defined as longer than 6–8 weeks) in the last year.
• Defining Income: If you operate through a Limited Company, lenders differ wildly on what they assess—some use salary and dividends, others use the gross contract value (your day rate).
• New Contracts: If you are applying immediately after signing a new contract, some lenders may require evidence that you have previously completed work for that client or in that specific sector.

How Lenders Assess Contractor Income

The assessment method is paramount to successfully switching providers. Understanding these methods allows you to target the right lender.

1. Day Rate Calculation (Specialist Method)

This is the most favourable method for high-earning contractors. The lender annualises your day rate, often assuming you work 5 days a week for 46 or 48 weeks of the year.

Example: If your day rate is £500, the calculation may be £500 x 5 days x 46 weeks = £115,000 annualised income. This figure is then used for affordability calculations.

2. Fixed-Term Contract Value

If you are on a long-term fixed contract (e.g., 6 months at a set fee), the lender uses the full value of that contract and projects it forward, provided you have a history of securing new contracts upon expiry.

3. Limited Company Accounts (Standard Method)

If you apply through a standard high street provider, they will typically assess income based on historical performance, demanding:

• Your salary and dividends taken (which may be low for tax efficiency); or,
• Your net profit, sometimes averaged over the last two or three financial years.

If you have structured your company to minimise taxable income, this standard assessment may significantly reduce your perceived affordability, making it harder to switch to the best rates.

Documentation Required for Contractor Remortgaging

To ensure a smooth transition when you switch mortgage providers, meticulous preparation of documentation is essential. You must provide clear evidence that your contracting role is stable and lucrative. Typically, you will need:

• Current Contract: Must clearly state the duration, day rate, and termination clause.
• Contract History: Usually the preceding 6–12 months of contracts to demonstrate continuity.
• Bank Statements: Personal and business statements (usually 3–6 months) showing the consistent payment of your contract invoices.
• Proof of Identity: Passport and utility bills.
• Tax Documentation: SA302 forms (Tax Calculation) and Tax Year Overviews from HMRC for the last two years.
• Curriculum Vitae (CV): Often required by specialist lenders to confirm your professional history and expertise in your field.

The Remortgage Process for Contractors: Step-by-Step

Switching providers involves several key stages:

1. Review Your Current Deal: Check your existing mortgage agreement for any Early Repayment Charges (ERCs). These fees, triggered if you switch before the end of your fixed term, could outweigh the savings of a new, lower rate.

2. Assess Your Finances and Credit Profile: Before applying, ensure your credit file is accurate and healthy. Contractors often rely on clean credit histories to compensate for perceived income instability.

It is important to know what lenders will see when they review your application, as errors or unreported debts can cause major delays or rejection. 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)

3. Seek Specialist Advice: A mortgage broker with expertise in contractor applications will be able to match your unique income structure (day rate, limited company status) with the most appropriate lenders, saving you time and preventing unnecessary hard credit searches. The Money Helper service offers guidance on choosing a qualified financial adviser.

4. Formal Application and Underwriting: Once a suitable provider is found, submit your application with all required documentation. Be prepared for detailed questioning during the underwriting stage, as the lender will meticulously review your contract timeline and income calculations.

5. Valuation and Completion: The new provider will arrange a property valuation. If successful, you will receive a mortgage offer. Upon completion, the funds are transferred to your old provider, and your new mortgage deal begins.

People also asked

How much deposit or equity do I need to switch mortgage providers?

While remortgaging usually involves leveraging the equity you already have, the loan-to-value (LTV) ratio remains critical. Better rates are typically available if your LTV is 80% or lower (i.e., you have at least 20% equity in the property). Contractors with smaller amounts of equity may find fewer specialist lenders willing to accept their application.

Do I need a continuous contract history to remortgage?

Lenders generally prefer continuous work history. While a short gap (up to six weeks) between contracts may be acceptable if you have secured your next placement, extended or frequent gaps can lead to rejection or require you to use a specialist broker who deals with contractors who have more volatile income patterns.

Can I remortgage if I recently switched from permanent employment to contracting?

This is challenging but not impossible. Many lenders require 12 months of demonstrable contract history. If you have just switched, you may need to wait or look exclusively at providers who offer bespoke exceptions based on your professional background and the value of your first contract.

Does using a Limited Company affect my interest rates when I switch providers?

Using a limited company structure itself does not usually affect the interest rate offered, provided the lender accepts your income calculation. However, because contractors often rely on specialist lenders whose products sometimes carry slightly higher arrangement fees or interest rates compared to the absolute lowest rates available on the high street, you should compare the overall cost carefully.

What if my current mortgage provider is offering a competitive product transfer rate?

If your existing provider offers a good product transfer rate (a new deal without switching lenders), this can be the simplest option, as they already understand your income history. However, it is vital to compare this against the best rates available on the open market—even if the application process is slightly harder, the savings from switching could be substantial over the long term.

Final Considerations

As a contractor seeking to switch mortgage providers, your ability to remortgage successfully hinges on preparation and presentation. You must treat your income documentation as a robust business case, demonstrating consistency, professionalism, and future earning potential.

While the process requires more effort than a standard employed application, the UK mortgage market has evolved significantly to accommodate high-calibre contractors. By leveraging the expertise of a specialist broker and ensuring your documentation is impeccable, you stand an excellent chance of securing a better rate and saving money on your mortgage.