How long do I need to be contracting to get a mortgage?

Navigating the mortgage market when you work as a contractor can be challenging, as traditional lending criteria are often geared towards applicants in permanent, salaried employment. Lenders focus heavily on stability and continuity of income, which contractors often demonstrate differently than standard PAYE employees. Understanding the minimum history requirements is the crucial first step in securing mortgage approval.

How long do I need to be contracting to get a mortgage?

The standard answer to how long you need to be contracting to get a mortgage is 12 to 24 months. However, this is not a hard-and-fast rule and varies significantly between lenders and depends heavily on your specific employment structure.

Lenders need confidence that your income stream is reliable enough to cover mortgage repayments over the long term. For a contractor, demonstrating this reliability usually means showing a history of completed contracts and securing new work without lengthy gaps.

Understanding Lender Requirements: The 12- vs 24-Month Divide

The majority of UK mortgage lenders fall into two main categories when assessing contractor applications:

The 24-Month Standard (Mainstream Lenders)

Many high-street banks and building societies prefer applicants who can provide two full years of self-assessment tax returns (SA302s) or audited business accounts. This 24-month standard is generally considered the safest benchmark for proving stability.

• Why 24 months? It mitigates the risk of a new business failure, ensures the contractor has weathered at least one economic cycle, and provides comprehensive proof of average annual income via HMRC documentation.

The 12-Month Requirement (Specialist & Flexible Lenders)

The good news is that specialist lenders, who are often more familiar with the contracting industry, are increasingly flexible. Many will consider applicants who can demonstrate a minimum of 12 months of continuous contracting experience.

• Criteria for 12 months: To qualify with only 12 months’ history, you will typically need a strong day rate, an excellent credit history, and a current contract with significant time remaining (e.g., 3 to 6 months) or evidence of a contract extension already agreed upon.

The 3- to 6-Month Exception

It is possible, though rare, to secure a mortgage with less than a year of contracting experience. This is usually restricted to specific scenarios:

• High Day Rates: If your contract income is significantly high, some lenders may overlook a shorter track record.
• Industry Continuity: If you recently moved from a permanent, salaried role to a contract role within the exact same industry, and you can show that the new contract is essentially the same job function but on a different employment basis, some lenders may rely on your previous permanent employment history.
• Specialist Products: Only a small number of brokers and lenders offer products designed specifically for very new contractors, often requiring higher deposits and incurring higher interest rates to compensate for the perceived risk.

The Impact of Your Contracting Structure

The way you structure your contracting business directly affects how a lender calculates your affordability and determines the necessary history. There are two primary structures:

1. Limited Company Contractors

If you operate through your own limited company, lenders typically look at your income using one of two methods:

• Salary and Dividends: Some lenders calculate your income based on the salary and dividends you officially draw from the company. This can be problematic if you keep profits retained within the business for tax efficiency, as your official taxable income might look artificially low.
• Net Profit/Gross Contract Value: Specialist lenders often take a more holistic view, assessing your total net profit (pre-tax) or even using a calculation based on your gross contract value or day rate. This approach usually allows you to borrow more, but requires stricter documentation (typically 2 years of company accounts).

2. Umbrella Company Contractors

Contracting through an umbrella company is often viewed more favourably by mainstream lenders, as it mimics traditional employment. Your pay is processed through PAYE, meaning you receive regular payslips which are easier for lenders to verify.

• History Requirement: If you use an umbrella company, lenders usually require you to show 6–12 months of continuous payslips. This structure often allows you to meet the 12-month criterion more easily than running a limited company.

Essential Documentation Required by Contractors

Regardless of how long you have been contracting, having impeccable financial records ready is critical. Lenders will thoroughly vet your application using documents specific to self-employed status.

• Contract History: Copies of your current and previous contracts, demonstrating continuity and confirming the day rate. They need to see a stable work pipeline.
• Bank Statements: Personal and business bank statements (typically 3–6 months) to verify consistent income deposits.
• HMRC Documentation (SA302s): Self-Assessment tax returns (SA302s) and corresponding tax year overviews are vital for limited company contractors, usually required for the last 1–2 years. You can retrieve these documents directly from HMRC. You can learn more about official tax documentation on the HMRC website.
• Company Accounts: If operating via a Limited Company, 1–2 years of formally prepared, certified business accounts are required.
• Payslips: If contracting via an umbrella company, 6–12 months of consecutive payslips.

Preparing Your Finances and Credit Profile

Because contracting inherently carries higher perceived risk than permanent employment, contractors must ensure every other aspect of their financial profile is exemplary. This includes maintaining a high credit score and keeping debt low.

Lenders will scrutinise your credit report for any defaults, County Court Judgements (CCJs), or missed payments, as these indicate potential future difficulty in managing finances.

Before making any mortgage application, it is essential to know exactly what is on your credit file.

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Additionally, ensure your deposit is saved and sourced legitimately, and that your existing debt-to-income ratio is favourable.

The Value of Specialist Mortgage Brokers

If you have less than 24 months of contracting history, or if your income structure is complex (e.g., using a limited company and retaining profits), your best course of action is typically to engage a specialist mortgage broker.

Specialist brokers are experts in the contractor market. They:

• Understand how to present your contract income favourably.
• Know which lenders use a flexible day-rate multiplier instead of relying solely on SA302s.
• Have relationships with smaller, niche lenders who are not always accessible on the high street.
• Can guide you on the specific documentation needed to meet the 12-month criteria, saving time and avoiding unnecessary credit searches with unsuitable lenders.

Calculating Contractor Income: The Day Rate Multiplier

One of the key advantages of working with specialist lenders is their use of the “day rate multiplier” calculation, particularly for high-earning contractors. This method ignores your formal salary and dividends and instead calculates your likely annual income based on your contract rate, offering a higher borrowing capacity.

The standard calculation usually looks like this:

(Daily Rate) x (Number of working days per week, typically 5) x (Number of working weeks per year, typically 46-48) = Assessable Annual Income

Example: If your day rate is £400, a lender might calculate your annual assessable income as £400 x 5 days x 48 weeks = £96,000. This figure is then used to determine affordability, regardless of what you actually drew as salary/dividends.

To use this method, you must typically demonstrate a minimum of six months to one year of continuous work at that rate.

People also asked

Can I get a contractor mortgage with less than 6 months’ experience?

While extremely difficult, it is technically possible if you have secured a specialist product, possess an exceptionally high day rate, or can demonstrate a seamless, recent transition from a long-term, similar permanent role.

Do lenders use my contract day rate or my annual salary and dividends?

It depends entirely on the lender. Mainstream high-street lenders often rely on the conservative figure (salary and dividends), while specialist lenders are more likely to use your day rate multiplied over a 46-48 week year, provided you have a sufficient history.

What happens if I have gaps between contracts?

Short gaps (up to 4–6 weeks) are generally acceptable and understood within the contracting industry. However, frequent or very long gaps (e.g., 3 months or more) will reduce lender confidence and may force you to wait until you can demonstrate 12 months of continuous work history again.

Is it harder to get a mortgage as a limited company contractor than an umbrella contractor?

It can be. Limited company contractors often require more documentation (full company accounts) and must use specialist lenders if they wish to borrow based on their full contract earnings, rather than the lower salary and dividends they drew for tax efficiency.

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

Generally, yes. If you have less than two years of trading history, having a larger deposit (e.g., 15% or 20%) can significantly reduce the risk profile in the eyes of the lender, potentially helping you qualify for better rates and more flexible lending criteria.

Conclusion

Securing a mortgage as a contractor requires planning and patience. While 24 months of consistent history provides the widest choice of lenders, the specialist market allows established contractors to secure funding with as little as 12 months’ history, provided they can demonstrate a robust, stable income and an excellent credit history. If you are approaching the 12-month mark, preparing all necessary documentation now will position you strongly for a successful application.