Do brokers charge more for contractor mortgages?

Contractors often find navigating the mortgage market complex due to their non-traditional income structure, which leads many to seek specialist mortgage advice. While it is true that some specialist brokers charge a fee for their services, this fee is generally applied because of the complexity of the application—not simply because the applicant is a contractor. In many cases, the access to exclusive products and tailored underwriting criteria secured by a specialist broker outweighs the cost of the fee, potentially saving the borrower money and hassle in the long term.

Do Brokers Charge More for Contractor Mortgages, and Is the Specialist Fee Worth It?

The UK mortgage market is highly competitive, yet securing finance when you are a self-employed professional, such as a contractor, can present unique challenges. Standard high street lenders typically prefer salary slips (P60s) and a consistent employment history. Contractors, often paid on day rates or operating through a limited company with complex accounts, do not fit this traditional mould.

This is where specialist mortgage brokers come into play. Understanding whether they charge more, and justifying that potential fee, requires looking closely at how contractor income is assessed and the value of specialised market access.

Why Contractor Mortgages Demand Specialist Knowledge

Most lenders assess affordability based on the lowest verifiable income figure, which, for a limited company contractor, might be the low basic salary taken to maximise tax efficiency. This rarely reflects the actual income or affordability.

Specialist brokers, however, work with niche lenders that have bespoke underwriting criteria for contractors. These criteria typically allow lenders to calculate affordability based on:

• Day Rate Calculation: Using your contracted daily rate, multiplied by a typical number of working days per year (e.g., 220–240 days), to achieve a realistic gross annual income figure.
• Retained Profits: Assessing overall limited company profitability, rather than just salary and declared dividends.
• Contract History: Accepting shorter employment history (sometimes 6–12 months) if the contract history is strong.

Due to this detailed and nuanced approach, the broker requires specific knowledge and established relationships with these specialist underwriters. This expertise is a service that may come with a professional fee.

Understanding How Broker Fees Are Structured

When asking do brokers charge more for contractor mortgages, the answer depends more on the broker’s model and the complexity of the work, rather than the client’s profession alone.

1. Commission-Only Brokers (Fee-Free)

Some brokers operate on a commission-only basis. They receive a ‘procuration fee’ directly from the lender when the mortgage completes. For standard cases, this covers their costs. However, these brokers usually stick to high street lenders and may struggle to place complex contractor cases, leading to rejection or poor terms based on inaccurate income assessment.

2. Fee-Charging Brokers (Specialist)

Specialist brokers, often those dealing with non-standard income or complex structures, may charge a client fee in addition to, or sometimes instead of, the lender commission. This fee reflects the additional time, expertise, and resources required to package a complex application and negotiate successfully with niche lenders.

The fee structure could take several forms:

• Fixed Fee: A set amount charged regardless of the loan size.
• Percentage Fee: A percentage of the total loan amount (typically 0.5% to 1%).
• Hybrid Fee: A smaller fixed fee charged upfront for research and packaging, followed by a completion fee.

If a specialist broker charges a fee, it is crucial that this cost is clearly explained and justified. All UK mortgage brokers must adhere to Financial Conduct Authority (FCA) regulations regarding transparency on fees and commissions. You can read more about mortgage advice and fees on the MoneyHelper website to ensure you understand your rights.

Is Paying a Specialist Broker Worth the Expense?

While paying a broker fee might feel counter-intuitive, especially if free options exist, the value proposition for contractors is usually very strong. The primary goal of a specialist broker is to secure a mortgage that wouldn’t otherwise be available, or to secure a rate that saves you significantly more than the fee charged.

Access to Better Rates and Terms

If a high street bank assesses your income based only on your minimal salary and offers you a mortgage of £150,000, but a specialist broker uses your day rate to secure a £300,000 loan at a comparable interest rate, the fee paid to the broker is instantly justified by the enhanced lending capacity.

Furthermore, because specialist brokers are often able to secure a better interest rate than you might find independently via a standard lender (who would treat your file as higher risk), the lifetime interest savings on the loan can far exceed the initial broker fee.

Reducing Risk and Saving Time

Contractor mortgages involve a specific documentation heavy process. Incorrectly submitted paperwork or applying to unsuitable lenders results in rejections, wasted application fees, and negative marks on your credit file. A specialist broker handles the complexities, ensuring your application is presented correctly the first time to a lender known to accept your income structure.

Before applying for any mortgage, understanding your credit position is vital, as brokers base their advice on accurate credit history. 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)

Due Diligence: How to Vet a Specialist Broker

If you choose to work with a fee-charging broker, ensure you understand exactly what you are paying for and when the payment is due. Always ask:

• Are you regulated by the FCA?
• What is your fee structure, and is it payable upfront or upon completion?
• Can you provide examples of lenders you frequently use for contractors paid on day rates?
• What is the average saving you secure for clients compared to standard high street rates?

A reputable specialist broker will always be transparent about their fees and will often only charge if they successfully secure you a mortgage offer.

While the overall lending process for contractors is more detailed, the commitment remains the same: a mortgage is a significant financial undertaking. Ensure you budget realistically for repayments, as failure to keep up with mortgage repayments could result in legal action, increased interest rates, or, ultimately, the risk of repossession. Your property may be at risk if repayments are not made.

People also asked

How is contractor income assessed for a mortgage?

Specialist lenders typically use your day rate or hourly rate, annualising it based on the number of days you work per year (often 46 to 48 weeks). For example, a £400 day rate might be assessed as an annual income of £88,000 (400 x 220 working days).

Do I need two years of accounts to get a contractor mortgage?

Not necessarily. While high street lenders often demand two or three years of fully audited accounts, specialist lenders catering to contractors are often willing to accept 6 to 12 months of contract history, provided the applicant has a strong employment track record in that sector.

Can I get a mortgage if I’ve only just started contracting?

It is more challenging, but possible. Some specialist lenders will consider first-time contractors if they have significant prior experience in the same industry (e.g., moving from permanent employment to contracting in the same IT role) and have a minimum contract length remaining, usually six months.

Is it harder for limited company contractors to get a mortgage?

Yes, traditional lending is harder because limited company structures are designed to minimise declared income for tax purposes. However, a specialist broker overcomes this by accessing lenders who accept either retained profits or the calculated day rate, making the process smoother and more successful.

Conclusion

Contractors should shift the focus from “Do brokers charge more?” to “What value does this broker provide?”. If a specialist broker charges a fee, it is usually proportionate to the complex work required to satisfy specialist underwriting criteria. By engaging an expert, contractors stand a far greater chance of securing the necessary lending at competitive rates, making the fee a worthwhile investment in achieving their property goals.