How often should contractors remortgage?

For contractors in the UK, the timing of remortgaging is typically determined by the end date of their current introductory mortgage deal, usually falling within a two- to five-year cycle. However, unlike standard employed applicants, contractors must also strategically time their remortgage applications to ensure they meet stringent continuous contract history requirements and present a clear, consistent income profile to lenders, ideally with 12 to 24 months of recent work history.

Understanding When and How Often Should Contractors Remortgage?

Remortgaging is a necessary financial exercise for homeowners seeking better interest rates, access to equity, or improved repayment terms. For contractors, whose income streams are often viewed as less stable than those in permanent employment, this process requires careful timing and preparation.

The core answer to how often should contractors remortgage? is based on the terms of your initial mortgage product. Most UK homeowners opt for fixed-rate deals lasting two, three, or five years. The optimum time to start the remortgaging process is six months before the current deal expires.

The Standard Remortgaging Cycle: 2, 3, or 5 Years

While some contractors might be tempted to move lenders frequently, the transaction costs (valuation fees, legal fees, and potential exit penalties) usually make frequent remortgaging uneconomical. Therefore, the cycle generally follows the length of the introductory rate chosen.

• The 2-Year Fixed Rate: This offers flexibility and quick adaptation to changing interest rates. Contractors who are anticipating a significant increase in day rates, or who expect their Loan-to-Value (LTV) ratio to improve quickly (by paying off capital or increasing property value), might prefer a 2-year term. However, it requires remortgaging preparation more frequently.
• The 5-Year Fixed Rate: This provides stability and budget predictability. For contractors who prefer to minimise administrative hassle or who are concerned about interest rates rising in the short to medium term, five years is often the preferred choice. It significantly reduces how often you need to apply for a new mortgage.

Regardless of the duration, allowing your mortgage deal to lapse and defaulting onto the lender’s Standard Variable Rate (SVR) is almost always significantly more expensive. The SVR is typically much higher than standard fixed or tracker rates.

Key Factors Influencing a Contractor’s Remortgaging Decision

Beyond the expiry date of your current deal, several financial and personal circumstances influence when a contractor should strategically seek a new mortgage product.

1. Your Contract and Income History

Contractors often face stricter criteria regarding continuous employment. Lenders want reassurance that income is stable. If you are approaching the end of a long contract and plan to take a break, it may be prudent to remortgage before your contract ends. Most specialist contractor lenders require:

• A minimum of 12–24 months of continuous contracting history.
• Evidence of the current contract, often including proof of renewal or a clear path to future contracts.

If you have just started a new contract after a gap, wait until you have established several months of continuous work before applying, unless the urgency of your expiring deal dictates otherwise.

2. Significant Changes in Loan-to-Value (LTV)

The LTV ratio compares the mortgage amount against the property value. If the value of your property has increased significantly, or if you have made substantial capital repayments, your LTV ratio will drop. Moving into a lower LTV band (e.g., from 80% to 75% or 70%) can unlock much lower interest rates. This financial improvement might justify the cost of remortgaging sooner than planned, even if it means paying an early repayment charge (ERC).

3. Interest Rate Environment

If the Bank of England base rate rises, or if predictions suggest a sharp increase in mortgage rates, it may be sensible to secure a new fixed rate sooner. Conversely, if you are currently on a fixed rate and rates fall significantly, you may consider whether the savings from a new, lower rate outweigh the cost of the ERC on your existing deal. This calculation must be made carefully.

For personalised advice specific to your contracting situation and the fluctuating financial market, it is highly recommended to consult a specialist mortgage broker. You can also review current UK interest rate trends and advice from independent sources like MoneyHelper.

How Lenders Assess Contractor Income for Remortgaging

The way a contractor’s income is calculated is the biggest difference between their application and that of a permanently employed person. Traditional high street lenders often rely strictly on SA302 tax calculations and two years of filed accounts, which can significantly underestimate a contractor’s true earnings if they operate through a limited company and leave profits retained.

Many contractor-friendly lenders, however, use your day rate or hourly rate to calculate affordability, typically annualising the rate based on a standard work year (e.g., 46 or 48 working weeks).

Required Documentation

When preparing to remortgage, ensure you have the following ready, as lenders will need recent evidence of stable income:

• Proof of identity and address.
• Bank statements (usually 3–6 months).
• Your current and previous contract agreements (usually covering the last 12–24 months).
• A copy of your CV detailing your employment history.
• If operating via a limited company: latest accounts and personal tax returns (SA302s).

Your credit profile will be a crucial element in determining the rates offered. Before beginning the application process, it is wise to review your credit file to ensure all information is accurate and up-to-date.

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When Should Contractors Avoid Remortgaging?

While securing a better rate is always desirable, there are times when moving your mortgage is not advisable:

1. If Facing an Early Repayment Charge (ERC): Unless the new rate offers substantial long-term savings that clearly exceed the ERC, paying to leave a deal early is rarely cost-effective. Check the small print of your current agreement.

2. During a Contract Gap or Career Change: A significant gap between contracts, or actively changing contracting fields, can flag uncertainty to lenders. Wait until you are settled into a new, long-term contract and have accrued at least three months of statements showing consistent income.

3. If Property Value Has Fallen: If your property valuation is significantly lower than when you took out the mortgage, you might struggle to move to a new lender, or you may be placed in a higher, more expensive LTV band.

People also asked

Can I remortgage if I have only been contracting for six months?

While some standard high-street lenders may require 12 to 24 months of trading history, specialist contractor mortgage providers may consider applicants with as little as six months if they have extensive previous experience in the relevant industry and a high daily rate that demonstrates strong earning potential.

Do lenders use my day rate or my limited company accounts?

Contractor-friendly lenders often use your day rate (or hourly rate) as the primary measure of affordability, typically multiplying it by 5 days a week for 46–48 weeks a year. This calculation often allows for higher borrowing than using declared limited company dividends and salary, which may be low for tax efficiency purposes.

What is the benefit of using a specialist contractor broker?

A specialist broker understands the nuances of contractor income, including Umbrella company payments, retained profit, and different forms of contract, and can match you directly with lenders whose underwriting criteria favour these income structures, saving significant time and reducing the risk of application rejection.

Does a remortgage application affect my credit score?

Yes, submitting a formal mortgage application typically involves a ‘hard search’ on your credit file, which leaves a footprint and can temporarily lower your credit score. It is advisable to limit full applications and instead use soft searches and initial quotes to gauge eligibility before committing to a formal application.

How early can I start the remortgage process?

You can typically start the process six months before your current rate expires. This allows sufficient time for broker consultation, formal application, valuation, and legal conveyancing, ensuring that the new deal is ready to start immediately once the old rate ends, preventing you from moving onto the expensive SVR.

Conclusion

For UK contractors, the optimal frequency for remortgaging aligns with the end of their introductory product term (usually 2, 3, or 5 years). However, successful remortgaging relies heavily on meticulous financial preparation, maintaining continuous contract history, and understanding how your specific income structure will be assessed by lenders. By planning ahead and ideally utilising a specialist mortgage adviser, contractors can ensure they secure the best available rates and maintain financial predictability.

Please note: The information provided in this article is for general guidance only and does not constitute financial advice. Mortgage deals and interest rates are subject to change, and specific lending criteria apply.