Can contractors get help-to-buy mortgages?

Navigating the mortgage market as a contractor can be challenging, especially when seeking government schemes designed to help first-time buyers. While the specific rules of schemes like the former Help to Buy Equity Loan placed few restrictions on employment status, securing the necessary mortgage finance depends heavily on how lenders assess your income stability. Contractors can obtain these mortgages, but they must usually approach specialist lenders who understand complex income streams, demonstrating a clear, consistent history of contracts and reliable day rates.

Can Contractors Get Help-to-Buy Mortgages? Understanding Specialist Lending

The UK housing market presents unique barriers for self-employed individuals and contractors. While traditional full-time, employed applicants with fixed salaries typically follow a straightforward underwriting process, contractors must often provide far more extensive documentation to prove their long-term affordability. When combining this status with a government scheme like Help to Buy (or its regional equivalents), specialist advice is essential.

Understanding the Help to Buy Scheme Context

It is important to note the current status of the most prominent government scheme in this category. The Help to Buy Equity Loan scheme in England closed to new applications on 31 October 2022. However, similar shared equity or first-time buyer schemes may exist in Scotland, Wales, and Northern Ireland, and the principles of accessing finance as a contractor remain identical across most types of mortgages.

The criteria for being eligible for the scheme itself did not exclude contractors. The primary challenge was always satisfying the individual requirements of the lender providing the mortgage portion of the loan.

For more detailed information regarding the closure and winding down of the English scheme, prospective applicants should consult official government resources: Check the official government guidance on Help to Buy.

The Core Challenge: Income Stability and Assessment

Contractor income is often derived from high day rates but lacks the guaranteed continuity of a salaried position. Mainstream lenders often view this as higher risk. To overcome this, contractors must demonstrate stability and predictability.

How Lenders Assess Contractor Income

Lenders generally employ one of two methods when assessing a contractor’s income for affordability:

1. Day Rate Calculation (Specialist Lenders)

Specialist lenders understand that a contractor’s limited company accounts may not reflect their true earning potential, as they often draw a small salary and take the rest in dividends, or retain profits in the business. These lenders will often calculate affordability based on your average day rate.

The typical calculation involves:

• Multiplying the day rate by five (for a working week).
• Multiplying that weekly figure by 46 to 48 weeks (allowing for holidays and breaks between contracts).

For example, a contractor earning £500 per day might be assessed on an annual income of £115,000 (£500 x 5 days x 46 weeks). This method is significantly more favourable than relying solely on retained profits and salary/dividends.

2. Standard Self-Employed Accounts (High Street Lenders)

High street lenders often treat contractors who operate via a Limited Company as standard self-employed applicants. This means they will typically assess income based on the average of the last two or three years of official trading accounts (P60s, SA302s, or equivalent). If you have only been contracting for a short period or have structured your pay to minimise declared income, this route is much harder.

Contract History and Tenure Requirements

The length and consistency of your contracting history are perhaps the most critical factors when applying for a mortgage, including those linked to Help-to-Buy or other government schemes.

Minimum Contract History

• Two Years: Most mainstream lenders require two years of trading history, reflected in filed accounts, to feel comfortable about stability.
• One Year: Some specialist lenders will consider contractors with just 12 months of consecutive contracts, provided they have a strong employment track record in the same industry prior to contracting.
• First-Time Contractors: It is significantly harder to secure financing if you are new to contracting, unless you have a guaranteed lengthy initial contract (e.g., 6–12 months) and significant reserves.

Contract Type Matters

Lenders differentiate based on how you are paid:

• Limited Company Contractors: You typically require more complex documentation (filed accounts, company bank statements) but have more favourable income assessment via day rate calculation with specialist brokers.
• Umbrella Company Contractors: While technically still self-employed, you are often seen as less risky because your income is processed through the umbrella firm, providing clearer P60 documentation that is closer to PAYE.

Required Documentation for Contractors

Regardless of the specific lending scheme, contractors need to prepare a robust application package to demonstrate financial reliability:

1. Current Contract: A copy of your signed current contract showing the day rate, duration, and termination clauses.
2. Previous Contracts: Copies of previous contracts (usually covering the last 12–24 months) to show continuity of work.
3. Bank Statements: Personal and/or business bank statements demonstrating consistent contract payments.
4. Proof of Identity: Passport, driving licence, etc.
5. Financial Records (Limited Company): SA302 forms, company accounts (P&L, balance sheet), and evidence of tax paid to HMRC.

Before applying, always ensure your financial profile is strong. Lenders will carry out a credit search to review your history of managing debt.

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The Role of a Specialist Broker

For contractors seeking complex mortgages, particularly those linked to government incentives, using a mortgage broker who specialises in contractor finance is highly advantageous. They possess established relationships with specific lender underwriting teams and know which institutions are most likely to use the favourable day rate calculation method.

A specialist broker can:

• Identify lenders who accept a single year of contracting history.
• Structure your application to clearly present your income stability, mitigating lender concerns about gaps between contracts.
• Ensure you meet all compliance requirements for the scheme (e.g., first-time buyer status, property value cap) and the lender simultaneously.

Potential Risks and Considerations

While securing a contractor mortgage is achievable, applicants must be aware of the inherent risks:

• Higher Interest Rates: If you must use a niche, specialist lender due to short contract history or complex accounts, the interest rate may sometimes be higher than standard high street rates.
• Contract Gaps: Even brief, unplanned gaps between contracts could lead the lender to reassess your application during the underwriting process, particularly if the gap occurs after the initial offer has been made.
• Failure to Repay: As with any secured borrowing, failure to maintain mortgage repayments, including the government’s equity loan component (once repayments begin), can lead to serious financial consequences. Your property may be at risk if repayments are not made. Consequences can include legal action, repossession, increased interest rates, and additional charges.

People also asked

Can I get a mortgage if I’m a contractor with only six months of experience?

It is extremely difficult to secure a mainstream mortgage with only six months of contracting experience. Some specialist lenders may consider your application if you have a guaranteed, long-term contract (12+ months) already in place and a substantial employment history in the same field immediately preceding your contracting role.

Do I need two years of accounts if I operate through an Umbrella Company?

No, usually not. Because an umbrella company provides you with a regular PAYE payslip and P60, many lenders will assess you more similarly to a standard employed individual, often requiring just 3–6 months of payslips and a P60 from the most recent tax year.

What annual income figure will a lender use if I am paid day rates?

If the lender accepts the day rate calculation method, they typically annualise your income by multiplying your day rate by five days per week, and then by 46–48 weeks per year. This figure is then used to calculate your maximum borrowing capacity, which is typically 4 to 5 times your annualised income.

Are there alternatives to the Help to Buy scheme for contractors?

Yes, alternative government schemes exist, such as Shared Ownership (where you buy a share of a property and rent the rest) or the Mortgage Guarantee Scheme, which encourages lenders to offer 95% Loan-to-Value mortgages. Contractors still face the same income assessment challenges under these schemes but specialist brokers can help you find suitable lenders.

Will operating a Limited Company impact my mortgage application negatively?

Operating a Limited Company is only negative if you draw minimal salary and dividends, leaving large profits retained in the company, and are dealing with a non-specialist lender. Specialist mortgage providers are comfortable with Limited Company structures and will assess your true earning power based on contracts and day rates, not just drawn income.

In summary, while the path to securing any mortgage, including those linked to now-closed or existing government schemes like Help to Buy, is often more complex for contractors than for PAYE staff, the door is certainly open. Success hinges on rigorous documentation, a strong credit history, and professional guidance from brokers who specialise in contractor finance.