Can I get a mortgage if I recently switched from permanent to contracting?

Navigating the mortgage market after transitioning from permanent employment to contracting can be challenging, as lenders typically prioritise applicants with established, stable income histories. While it is certainly possible to secure financing, especially with specialist providers, you will need to demonstrate strong evidence of current contracts, a healthy day rate, and clear professional experience to mitigate the perceived risk of variable income.

Can I get a mortgage if I recently switched from permanent to contracting?

Yes, you can secure a mortgage after switching from permanent employment to contracting, but the process often requires a different approach than that taken by standard PAYE employees. Most high-street banks rely heavily on the previous two or three years of income records (often verified via SA302 forms/Tax Year Overviews), which a newly established contractor will not possess. However, the UK lending market includes many specialist lenders and building societies who understand the dynamics of contract work and are willing to assess affordability based on your day rate, even with limited history.

The key challenge is convincing a lender that your income is reliable and sustainable. Contract work is inherently viewed as less stable than permanent employment, and the recency of your switch means you have a short track record demonstrating your ability to secure renewals or new placements quickly.

Why Switching Employment Affects Your Mortgage Application

Lenders use strict criteria to assess affordability, and their primary concern is ensuring the borrower can comfortably meet the repayments for the entire term of the mortgage. When you switch from permanent status to contracting, you move from having a guaranteed, ongoing income stream to one based on fixed-term assignments.

The Lender’s Risk Perspective

Lenders view contracting as potentially higher risk for several reasons:

• Income Variability: Contracts end, and there may be periods of ‘bench time’ (unemployment) between assignments.
• Proof of History: Newly switched contractors lack the two or three years of audited accounts or tax records that standard self-employed applicants typically rely on.
• Assessment Method: Income assessment for contractors is more complex, often requiring the use of day rates rather than simply looking at dividends or salary drawn, especially if the contractor operates through a limited company for tax efficiency.

If you have only been contracting for a few months, your application will likely be directed toward lenders who specialise in professional mortgages or complex income structures.

How Lenders Assess Contractor Income

For contractors, lenders often ignore standard tax documents (which might show low taxable income due to legitimate business expenses) and instead focus on your total gross income potential, primarily determined by your contract day rate.

The Minimum Track Record Requirement

While some standard lenders demand a minimum of two years of accounts, specialist lenders often accept the following documentation for recently switched contractors:

• 6 Months History: Many flexible lenders require six months of continuous contracting history within the same field.
• 12 Months History: This is generally considered the “sweet spot” where a wider range of lenders become available.
• Exceptional Cases (Less than 3 Months): If you are highly experienced in your field and have moved to contracting for the first time, some lenders may consider you based on a combination of your previous permanent employment history (often 2-3 years) and a substantial current contract (e.g., 6-12 months duration remaining).

Using Your Day Rate for Affordability

The most common and beneficial way lenders assess contractors is by annualising your day rate. They do not simply multiply the daily rate by 365, as this ignores holidays and downtime. Instead, they typically use a formula to determine your likely annual earnings (L.A.E.).

A common calculation looks like this:

(Day Rate) x 5 days per week x (46 or 48 working weeks per year) = Likely Annual Earnings (L.A.E.)

Lenders will then calculate your maximum borrowing amount (typically 4 to 5 times the L.A.E.), regardless of whether you are paid through a limited company or an umbrella company.

Preparing Your Application: Key Documentation

To successfully apply for a mortgage shortly after switching to contracting, comprehensive and detailed documentation is essential.

You will typically need the following:

• CV/Professional History: Lenders want to see stability in your career path, demonstrating that the contracting role is a natural progression and not a temporary fix.
• Current Contract: The full legal document detailing your day rate, client, start date, and end date. A longer contract (e.g., 12 months) is highly preferred, or one with a strong history of extensions.
• Bank Statements: Usually 3 to 6 months of personal and business (if applicable) bank statements showing consistent income payments.
• Invoices and Payment Records: Evidence that your invoices have been consistently paid on time.
• Proof of Deposit: Clear evidence of the source of your deposit funds.
• Credit Report: Understanding your credit history is vital. Lenders will perform searches, but knowing the contents beforehand helps address any potential issues proactively. 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)

Steps to Improve Your Chances of Approval

If you are applying for a mortgage soon after becoming a contractor, take proactive steps to present yourself as a low-risk borrower:

1. Seek Specialist Broker Advice

Do not rely solely on standard high-street lenders. A broker specialising in contractor mortgages will know exactly which specialist lenders accept applicants with short trading histories and can present your application in the most favourable light, focusing on the day rate method rather than audited accounts.

2. Ensure Contract Continuity

If you can secure a renewal or a follow-on contract before applying, this significantly strengthens your position. Lenders look for high confidence that income will continue beyond the term of the current assignment.

3. Minimise Existing Debt

Affordability calculations factor in all your existing financial commitments. Reducing credit card balances, personal loans, or other debt before applying will increase the amount a lender is willing to lend you.

4. Increase Your Deposit

A larger deposit mitigates risk for the lender. If you can afford a Loan-to-Value (LTV) ratio of 80% or less (i.e., a deposit of 20% or more), you will access better rates and a wider range of lenders.

5. Address Tax Efficiency

If you operate via a limited company and have historically drawn a small salary and large dividends for tax efficiency, be prepared for this to complicate matters. This is why using the day rate calculation (via a specialist lender) is often the most successful strategy for contractors.

For official UK guidance on calculating affordability and seeking mortgage advice, you can consult resources such as MoneyHelper, which provides independent information on the mortgage application process.

People also asked

How long do I need to be contracting before I can apply for a mortgage?

While some specialist lenders might consider you with only three months of history if you have an extensive professional background, the sweet spot is generally six to twelve months of consistent contracting work, coupled with a current contract that has several months remaining before renewal is due.

Do I need a higher deposit if I am a new contractor?

You may not be formally required to provide a higher deposit, but offering a larger deposit (e.g., 20% or more) can significantly improve your chances of approval, provide access to more favourable interest rates, and encourage lenders to be more flexible regarding your limited contracting history.

Does it matter if I contract through an umbrella company or a limited company?

It can matter, but specialist contractor lenders usually focus on your day rate regardless of the pay structure. If you contract through an umbrella company, your income statements may look more like standard PAYE, which can sometimes simplify the initial assessment for certain lenders compared to assessing complex limited company accounts.

Can I use my previous permanent salary to help qualify?

Yes, especially if the switch to contracting was recent and the new role is highly relevant to your previous permanent position. Some lenders will consider your history of earnings in the same industry to justify the stability of your new contract, particularly if you have less than six months of contracting evidence.

Will switching from permanent to contracting affect my interest rate?

Initially, you may find that the interest rates offered by specialist contractor lenders are slightly higher than the lowest rates available to permanent, high-street applicants, due to the perceived higher risk. However, once you have two years of consistent contracting history, you should be able to access the competitive rates offered by standard lenders during a remortgage.

Next Steps for Contractor Mortgages

If you recently asked, “can i get a mortgage if i recently switched from permanent to contracting?”, the answer is conditional upon preparation and finding the right lender. The key to success lies in meticulous documentation and working with a mortgage broker who has strong relationships with lenders that specialise in complex income assessments. Avoid applying directly to high-street banks that only offer standard PAYE products, as a rejection could negatively impact your credit profile and delay your application process.

By demonstrating professional continuity, securing a robust current contract, and preparing a strong financial case based on your realistic annual earning potential, you can successfully transition from renter (or existing homeowner) to mortgage borrower, even shortly after changing your employment status.