Can newly self-employed contractors get a mortgage?

Securing a mortgage when you are newly self-employed, particularly as a contractor, presents unique challenges compared to a permanently employed applicant. Mainstream UK lenders typically require two to three years of audited accounts or SA302 forms to demonstrate stable income. However, specialist lenders and brokers are increasingly recognising the high earning potential and stability offered by professional contractors, allowing those with limited trading history—sometimes as little as three to six months—to successfully apply for a mortgage.

Can Newly Self-Employed Contractors Get a Mortgage in the UK?

The short answer is yes, but the process is usually more complex and requires careful preparation. Being self-employed means that your income profile does not fit the simple Pay As You Earn (PAYE) model that standard high-street banks prefer. When you are a new contractor, this challenge is amplified because you lack the historical financial track record that lenders use to calculate risk and affordability.

For high-street lenders, the requirement for evidence of income typically involves:

• At least two full years of finalised accounts (if trading as a Limited Company).
• Two to three years of SA302 tax calculations and tax year overviews (if trading as a Sole Trader).

If you have been contracting for less than 24 months, you will fall outside the criteria of most major lenders. This is where professional advice and specialist mortgage products become essential.

The Specialist Path: Contractor Mortgages

Specialist lenders recognise that professional contractors—such as those in IT, engineering, or finance—often earn high day rates and operate under long-term, predictable contracts. These lenders are willing to look beyond annual accounts and base their affordability assessment on different criteria, known as ‘contractor mortgages’ or ‘day rate mortgages’.

How Specialist Lenders Assess Your Income

Instead of relying purely on your declared taxable profits, which may be low due to efficient tax planning, specialist lenders focus on your gross contracted income. They effectively annualise your day rate to determine your borrowing capacity. The calculation typically works as follows:

(Day Rate × 5 Days) × 48 Weeks = Assumed Annual Income

Using this calculation, a contractor earning £500 per day could be assessed on an annual income of £120,000, even if their declared taxable profit was significantly lower. This calculation provides a much stronger foundation for proving affordability.

When Are You Considered “Newly” Self-Employed?

The definition of ‘newly’ varies between lenders, but generally refers to someone trading for less than two years. Crucially, specialist lenders have different minimum requirements:

• 3–6 Months of Trading: Some of the most flexible lenders may consider an application with just three to six months of contracting experience, provided you have a clean history and a clear contract for future work.
• 12 Months of Trading: Many specialist providers require a minimum of 12 months of trading history, often needing to see evidence of at least one contract renewal to prove continuity and stability.

If you have just started contracting but were previously employed in the same industry, highlighting this continuity of professional experience can strengthen your application, as it reduces the perceived risk of instability.

Key Requirements for Newly Self-Employed Contractors

To successfully apply for a mortgage with limited trading history, you must present a compelling case demonstrating income stability and reliability. Lenders will rigorously scrutinise your documents.

1. Robust Contract Documentation

The single most important factor is the strength of your current and previous contracts. You will typically need to provide:

• Copies of your current contract, showing the day rate, start date, and end date.
• Evidence of previous contracts or contract renewals, confirming continuity of work over the last 6–12 months.
• A history of banking transactions that clearly reflect consistent payments for contract work.

2. A Significant Deposit (Lower LTV)

Risk is mitigated by the size of your deposit. The higher the Loan-to-Value (LTV) ratio, the higher the perceived risk for the lender. As a newly self-employed contractor, putting down a larger deposit (e.g., 20% or 25%) will open up better rates and options that might be unavailable if you only have a 5% or 10% deposit. A lower LTV demonstrates greater commitment and reduces the lender’s potential loss.

3. Managing Your Credit Profile

Your personal financial history is crucial. Because you lack historical accounts, lenders rely heavily on your credit report to judge financial responsibility. You must ensure your credit file is accurate and clean, showing no recent missed payments, defaults, or county court judgments (CCJs).

It is wise to check your report before applying to identify and rectify any errors. 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)

4. Understanding Tax and Legal Structures

Whether you operate as a Limited Company or a Sole Trader affects the required documentation:

• Limited Company Directors: Lenders typically look at directors’ remuneration (salary and dividends). If the lender is specialist, they may instead accept documentation detailing the company’s gross income and your ownership share, calculating affordability based on turnover rather than just drawings.
• Sole Traders: You must have submitted at least one annual Self Assessment (SA) tax return to prove declared income, although specialist providers may sometimes accept certified business accounts covering less than a full year, alongside bank statements. Information regarding filing your Self Assessment can be found on the UK Government website.

The Importance of Mortgage Brokers

Navigating the mortgage market as a newly self-employed contractor is extremely difficult without professional help. A specialist mortgage broker who understands the contractor market is invaluable because:

• They know which lenders offer day-rate calculations and which have the most flexible requirements regarding trading history (e.g., accepting 3 or 6 months).
• They can package your application to highlight the stability and earning potential inherent in your specific contracting role.
• They can access products that are not available directly on the high street.

Potential Risks and Considerations

While approval is possible, newly self-employed contractors should be aware of certain trade-offs:

1. Higher Interest Rates: Lenders perceive a lack of trading history as higher risk. Consequently, the interest rates offered on specialist contractor mortgages may be slightly higher than the best rates offered to standard PAYE employees with established financial histories.
2. Fees: Specialist products often come with arrangement or product fees that need to be factored into the overall cost of borrowing.
3. Underwriting Scrutiny: The underwriting process will be exhaustive. You must be prepared to provide extensive documentation regarding all contracts, invoices, and bank statements promptly.

People also asked

How much deposit do I need as a new contractor?

While standard minimum deposits are 5%, newly self-employed contractors typically need at least a 15% deposit (85% LTV) to access a reasonable range of specialist products. Deposits of 20% or 25% significantly increase the available options and improve the likelihood of securing better interest rates, as it drastically reduces the risk profile for the lender.

Will my credit score affect my contractor mortgage application?

Yes, your credit score is extremely important. Lenders use it as a primary indicator of reliability when trading history is limited. A clean credit record, free from defaults, CCJs, or serious missed payments in the last six years, is vital for securing competitive rates from any lender, especially a specialist one.

Can I use future contracts as evidence of income?

Lenders prefer to see a continuous history of completed contracts. However, confirmed contracts that start immediately after your current one ends are highly beneficial. If you are applying with only three months of trading, a confirmed 12-month contract renewal or a new contract starting within weeks is often a requirement for specialist lenders.

Do I need an accountant to verify my income?

Yes, having an accountant is highly recommended. For limited company directors, certified accounts are mandatory. For sole traders with limited history, having an accountant provide a forecast or a letter confirming the viability of your business and expected income for the upcoming year can significantly strengthen a mortgage application.

How long should I wait before applying for a mortgage?

The ideal waiting period is 12 months, as this satisfies many specialist lenders’ minimum criteria and allows you to demonstrate at least one cycle of consistent income. However, if you are a high earner with a large deposit and an immediate contract in place, consulting a broker after just three to six months might yield successful results.

Conclusion

While the journey for newly self-employed contractors to secure a mortgage is more demanding than for traditional applicants, it is entirely achievable. Success hinges on working with specialist mortgage professionals, demonstrating robust and predictable contracted income using day rates, and ensuring your personal finances, particularly your credit history and deposit size, are in the best possible shape. By focusing on stability and providing comprehensive documentation, contractors can transition from contract work to homeownership effectively.