Can contractors remortgage for a better deal?

Remortgaging as a contractor in the UK is certainly possible, and often necessary, to secure a more favourable interest rate or release equity from your property. While contractors face unique challenges compared to standard employed individuals due to their variable income structure, specialist lenders and brokers are well-equipped to assess income based on day rates and contract history rather than traditional P60s.

Can Contractors Remortgage for a Better Deal in the UK?

Yes, contractors frequently remortgage their properties, often doing so to move away from their initial, potentially higher, introductory interest rate onto a lower standard variable rate or a new fixed deal. Contractors, by definition, operate outside the typical employment structure, which means accessing traditional high-street remortgaging products can sometimes be challenging. However, the mortgage market has evolved significantly, and many lenders now cater specifically to self-employed professionals, including those working on fixed-term contracts or through their own limited companies.

The key to a successful remortgage application for a contractor is demonstrating income stability and proving that your current contractual arrangement provides a predictable, sustainable income stream.

Understanding Contractor Income Assessment

Lenders use specific criteria when evaluating a contractor’s income, which differs fundamentally from how they assess permanently employed individuals. Standard mortgage applications usually rely on two or three years of audited accounts or P60s. For contractors, particularly those operating via limited companies, proving sustainable income can be complex.

Day Rate vs. Salary and Dividends

How lenders assess your affordability often depends on how you are paid:

• Day Rate Contractors (via Umbrella Company or specific contracts): Many lenders are willing to calculate your potential annual income by annualising your day rate, often assuming a 46-week or 48-week working year. For example, a £400 per day rate (48 weeks) equates to an assumed gross income of £96,000. This method is often the simplest route to remortgaging, provided you have consistent contracts.
• Limited Company Directors: If you draw income primarily through a low salary and dividends, traditional high-street lenders may only consider the salary and dividend payments recorded on your tax returns (SA302s). This can significantly understate your true affordability if you retain profits within the company. Specialist lenders, however, are often willing to look at the company’s net retained profits, alongside your salary and dividends, providing a much higher calculation of income for affordability purposes.

To secure the best remortgage deal, aim to utilise a lender who recognises your full earning capacity, whether that is the annualised day rate or the full company turnover.

Essential Documentation for Contractor Remortgaging

Preparation is vital for contractors seeking a new mortgage deal. Having the correct, comprehensive documentation ready streamlines the process and builds confidence with the lender.

Typically, a lender will require:

• Contract History: Proof of consistent contracting over the last 12 to 24 months. Lenders want to see stability and minimal gaps between contracts.
• Current Contract: A copy of your current contract clearly stating the day rate, duration, and parties involved. Lenders usually prefer to see at least 3-6 months remaining on the current contract. If the contract is nearing expiry, proof of a new contract being secured or a history of immediate renewal is highly beneficial.
• Business Bank Statements: Usually covering the last 6 to 12 months, showing consistent payments into your account.
• Proof of Identity and Address: Standard requirements for any mortgage application.
• Tax Documentation (SA302s/Tax Year Overviews): If operating through a limited company, you will need documentation confirming income declared to HMRC, typically covering the last two years.
• Curriculum Vitae (CV): Some specialist lenders require a CV to demonstrate your career history, expertise, and marketability, proving that you will likely secure continuous contracts.

Maximising Your Remortgage Success Rate

To ensure you qualify for the best available rates when you can contractors remortgage for a better deal?, focus on two key areas: stability and creditworthiness.

1. Demonstrate Financial Stability

While contracting inherently involves periods between roles, excessive or lengthy gaps can concern lenders. If you have had gaps, be prepared to explain them (e.g., planned sabbatical, paternity leave). Lenders generally look for a minimum tenure of 12 months in the contracting field, though two years is often preferred for optimal rates.

2. Optimise Your Credit Profile

A strong credit score signals reliability to lenders and is crucial for accessing competitive interest rates. Before applying, review your credit reports for any errors or unexpected issues. Ensure all existing debts are managed responsibly.

Checking your credit file allows you to address discrepancies before a lender sees them. 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. Utilise Specialist Mortgage Brokers

Contractor remortgaging can be complex because criteria vary so widely between lenders. A specialist mortgage broker who understands the nuances of contractor finance can significantly improve your chances of success. They know which lenders will annualise a day rate, which accept retained profits, and which require specific contract lengths. This expertise saves time and ensures your application is presented in the most favourable light.

The Remortgage Process: When is the Right Time?

Most borrowers start the remortgage process around three to six months before their current deal expires. This allows ample time for application, valuation, and legal processes to complete without forcing you onto the lender’s potentially higher Standard Variable Rate (SVR).

If you are remortgaging to raise capital (equity release), you must clearly define the purpose of the funds, as some lenders impose restrictions on what borrowed money can be used for (e.g., funding business expansion versus paying off personal debts).

It is important to remember that securing a mortgage is a commitment, and you are borrowing against the value of your home. If you default on payments:

• Your property may be at risk if repayments are not made.
• Consequences could include legal action, repossession, increased interest rates, and additional charges which worsen your financial situation.

Always seek impartial advice before making secured borrowing decisions. For independent information on remortgaging, you can consult resources such as the government-backed MoneyHelper service.

People also asked

How long do I need to be contracting before I can remortgage?

Generally, mainstream lenders prefer a minimum of two years of contracting history. However, some specialist lenders may consider applicants with as little as 12 months of experience, provided they have a strong, high-value contract secured and robust industry experience.

Do I need to show two years of accounts if I operate a limited company?

If you are applying with a traditional lender relying solely on salary and dividends, two years of filed accounts (and corresponding SA302s) are usually necessary. Specialist lenders, calculating income based on annualised day rates or retained profit, may accept a shorter history or look for projection evidence alongside one year of accounts.

Can a gap between contracts affect my remortgage application?

Short gaps (e.g., four to six weeks) are generally acceptable, particularly if you have a new contract lined up. Lengthy or frequent gaps, or uncertainty about securing the next role, can negatively impact an application, as lenders prioritise stability and continuous earning potential.

Is it harder to remortgage if I am self-employed rather than a contractor?

The terms are often used interchangeably, but “contractor” usually implies a specific, high day-rate structure. True self-employed individuals (e.g., sole traders) may find it slightly simpler with standard lenders if their tax returns show consistent, high profits over three years, whereas contractors must navigate the varying lender policies on annualised rates and limited company dividends.

What is a contractor-friendly mortgage lender?

Contractor-friendly lenders are those who deviate from standard income assessment by annualising your day rate or by considering retained profits within your limited company, rather than just the salary and dividends you draw, allowing you to borrow based on your total earning potential.

In Conclusion

The answer to the question, can contractors remortgage for a better deal?, is a resounding yes, provided you approach the process strategically. By understanding how your specific income structure (day rate versus salary/dividends) is assessed, ensuring your documentation is impeccable, and potentially using a broker who specialises in the contracting sector, you can successfully access competitive remortgage rates.

The specialist lending market offers flexible criteria designed precisely for highly skilled professionals who do not fit the conventional employment mould. Securing a better deal relies on presenting a clear, compelling case for continuous future employment and demonstrating stability in your finances.