Can I get a mortgage if I just became a contractor?

Navigating the mortgage market when you have recently transitioned to contracting can feel daunting, as many mainstream lenders prefer applicants with a long, stable employment history. While it is generally more difficult to secure a mortgage immediately after starting a contract role, specialist lenders and brokers are often able to assess your affordability based on your day rate rather than requiring several years of accounts, making the goal achievable with the right preparation.

Can I Get a Mortgage If I Just Became a Contractor in the UK?

The short answer is yes, getting a mortgage is possible even if you have only recently become a contractor, but you should expect greater scrutiny and potentially fewer options compared to a permanently employed person. The key challenge lies in proving the stability and consistency of your income, which lenders rely on to confirm affordability.

Most traditional high street lenders adhere to strict criteria, viewing self-employed applicants, which includes contractors, as higher risk. They usually require two to three years of certified accounts (SA302s and tax year overviews) to calculate an average income. If you have just started contracting, you simply won’t have this evidence.

Fortunately, the mortgage market has evolved to recognise the growing population of professional contractors, particularly those in high-earning sectors like IT, finance, and engineering. Specialist lenders offer products specifically designed for contractors, often termed ‘contractor mortgages’.

Understanding Lender Criteria for New Contractors

When assessing a new contractor, lenders fall into two primary groups, each with different appetites for risk:

1. Traditional Lenders (Requiring History)

These lenders typically demand:

• Minimum of two years’ self-employment history.
• Proof of income via filed tax returns (SA302s).
• Consistency in income generation.

If you have just signed your first contract, applying to this group of lenders will likely result in a rejection.

2. Specialist or Contractor-Friendly Lenders (Day Rate Underwriting)

This group is crucial for new contractors. They operate using ‘contract-based underwriting’, meaning they assess your borrowing potential based on the terms of your current contract rather than relying on historical accounts. This approach typically involves annualising your day rate to determine your gross income.

To qualify for this route, you typically need to demonstrate:

• A minimum daily rate (this varies but is often £250–£350+ per day).
• A current contract with a substantial duration remaining (e.g., three to six months).
• Some lenders may require evidence of prior employment history in the same industry before contracting, which helps mitigate risk.

How Long Do I Need to Be Contracting Before I Can Apply?

While some mainstream banks insist on 12 to 24 months of continuous contracting history, it is possible to apply much sooner with specialist providers:

• Zero History (Highly Specialist): In rare cases, if you are a high-earning contractor coming straight from a similar permanent role, some highly niche lenders may consider you with zero contract history, provided you have a long, solid contract signed.
• 3 to 6 Months History: Many contractor-friendly lenders prefer to see you complete at least three months of your current contract or have a track record showing two consecutive contracts. This demonstrates that you can successfully complete work and secure renewals or new assignments.
• 12 Months History: If you can wait 12 months, your options significantly increase. At this point, you will have stronger evidence of sustainable income, making your application attractive to a wider pool of specialist lenders.

Required Documentation for a Contractor Mortgage

Applying as a contractor requires meticulous preparation regarding documentation. Lenders need compelling evidence that your income is reliable, even without two years of tax returns.

Key documents required typically include:

1. Current Contract: The full legal document detailing your day rate, start date, end date, and notice periods.
2. Contract History: If you have held previous contracts, details of these or a comprehensive CV showing employment history in the sector.
3. Bank Statements: Personal and business bank statements (usually covering the last 3–6 months) showing consistent income deposits and the management of funds.
4. Proof of Identity and Address: Standard requirements like passports and utility bills.
5. Evidence of Tax Status: Depending on whether you contract via a limited company or umbrella company, you may need accounts, confirmation of dividend payments, or PAYE slips.
6. P60 (if applicable): If you recently moved from a permanent role, your P60 can help establish your historical earnings.

It is vital that all documentation is consistent and up-to-date. Any gaps in employment history or discrepancies in declared income will raise red flags for underwriters.

Maximising Your Mortgage Application Success

If you are applying for a mortgage shortly after becoming a contractor, there are several steps you can take to strengthen your position and reassure lenders:

Improving Your Credit Profile

A pristine credit history is particularly important for contractors. Lenders often rely on your credit score to gauge overall financial responsibility if your employment history is limited. Ensure you are registered on the electoral roll, pay all debts on time, and minimise high-interest borrowing.

Understanding exactly what lenders see is critical before submitting an application.

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Increasing Your Deposit Size

The larger your deposit, the lower the Loan-to-Value (LTV) ratio. A low LTV (e.g., 75% or 80%) significantly reduces the risk for the lender. If you can provide a deposit of 20% or more, lenders are often more willing to be flexible on employment criteria.

Maintaining Continuous Contracts

Lenders prefer applicants who demonstrate continuity. If you are approaching the end of your current contract, having a signed extension or a new contract secured before you apply will vastly improve your chances.

The Role of Specialist Mortgage Brokers

For new contractors, attempting to navigate the mortgage market alone can be inefficient and lead to multiple rejected applications, which can temporarily harm your credit rating.

Specialist brokers are experts in the contractor lending niche. They:

• Know the Market: They know exactly which lenders offer contract-based underwriting and the specific criteria for each.
• Package the Application: They know how to present your contract and income structure to underwriters in the most favourable light.
• Access Exclusive Deals: Many specialist contractor mortgage products are only accessible via brokers, not directly through the high street.

Using a specialist broker drastically increases the likelihood of a successful application, ensuring you are directed straight to lenders who understand the nuances of contractor income.

Important Financial Considerations and Risks

While securing a mortgage as a new contractor is possible, be aware that the perceived risk associated with your employment status may lead to certain consequences:

• Higher Interest Rates: You may be offered slightly higher interest rates compared to a permanently employed person with three years of history, due to the perceived volatility of contract work.
• Affordability Calculations: The lender will calculate your affordability based on a conservative annualisation of your day rate, often assuming a certain number of weeks off per year (e.g., 46 weeks worked instead of 52) to account for downtime between contracts.
• Lending Caps: You might not be able to borrow the maximum multiple of income (e.g., 4.5x salary) that a conventional applicant might receive, especially with less than 12 months of trading history.

Ensure you seek regulated, impartial financial advice when planning a major purchase like a property. The government’s MoneyHelper service offers free, reliable information on finding the right mortgage deal.

People also asked

Can I use my day rate to calculate my mortgage income?

Yes, many specialist contractor-friendly lenders use your current day rate to calculate your annualised income. They typically multiply your day rate by the number of days worked per week, and then multiply that figure by 46 to 48 weeks, allowing for holiday and non-working periods.

Do I need a limited company to qualify for a contractor mortgage?

No, you can obtain a contractor mortgage whether you operate through a limited company or an umbrella company, or even if you are a sole trader. However, the documentation required will differ; limited company directors need to show full accounts, while umbrella company contractors can often use payslips.

Will a short-term contract prevent me from getting a mortgage?

A contract with less than three months remaining can be an issue. Lenders prefer long-term security. If your contract is short, the application will be significantly stronger if you already have a signed extension or a history of continuous renewal with the same client.

What deposit percentage is required for a new contractor?

While 5% deposits exist, new contractors typically benefit from having a minimum 10% deposit. A larger deposit, such as 15% or 20%, significantly improves application success and interest rate offers, compensating for the lack of long-term employment history.

Is it better to apply immediately or wait a year?

If your need is immediate and you have a high day rate, use a specialist broker to apply now. However, if you can afford to wait 12 months, your options will broaden considerably, and you may access better interest rates by having a full year of trading history and filed tax information.

Securing a mortgage as a new contractor requires careful planning and precise execution of your application. By understanding the criteria of contract-friendly lenders and presenting strong, meticulous documentation, you significantly increase your chances of obtaining the necessary finance for your property purchase.