What questions do mortgage lenders ask contractors?

Securing a mortgage when you are employed as a contractor in the UK can present specific challenges because your income structure differs significantly from that of a permanent, salaried employee. Mortgage lenders prioritise stability and predictability, and they will focus their questions on ensuring your contracting income is reliable enough to service the debt.

Addressing the Key Questions Mortgage Lenders Ask Contractors When Applying for a Mortgage

When assessing a mortgage application from a contractor, lenders adopt a different approach to income verification than they would for a standard PAYE employee. They cannot rely solely on a standard monthly payslip; instead, they need evidence that your freelance career is stable, lucrative, and likely to continue.

Why Contractors Face Specific Mortgage Scrutiny

For standard lending criteria, income is guaranteed until the point of notice. For contractors, income is tied to specific projects or contracts that have defined end dates. This perceived lack of long-term security means lenders need to assess the risk of gaps between contracts.

Lenders, particularly those familiar with complex income structures, typically look for patterns of continuous work, demonstrating your marketability and success in securing consecutive roles. The questions they ask are designed to convert your irregular earnings into an equivalent annual salary they can underwrite.

Category 1: Questions Focused on Contractual Stability and History

The contract itself is the primary document lenders will analyse. Be prepared to provide copies of your current contract and often, previous contracts covering the last 12 to 24 months.

• What is your current day rate (or hourly rate)? This is perhaps the most fundamental question. Lenders will use your day rate to calculate your projected annual income. For example, a lender might calculate income based on 46 weeks worked per year multiplied by 5 days, multiplied by your day rate.
• How long is the remaining duration of your current contract? Most lenders prefer a contractor to have a minimum of three to six months remaining on their current contract at the time of application. If the contract is nearing its end, they will want proof it is likely to be renewed or that you have secured the next placement.
• What is your continuous contracting history? Lenders generally seek a track record of 12 to 24 months of working primarily on contracts, with minimal gaps (typically less than 6–8 weeks between assignments). A long history of successful contracting demonstrates professional resilience and market demand for your skills.
• Are you contracted directly with the client or through an agency? Direct contracts might sometimes be viewed as slightly more stable, but working via a reputable agency is standard practice and generally acceptable, provided the agency is financially secure.
• Are you classified as ‘Inside IR35’ or ‘Outside IR35’? This relates to tax status and how you are paid. Lenders need to understand this classification to accurately verify your net income and assess future tax liabilities.

Category 2: Questions Focused on Financial Structure and Affordability

The way you operate—whether as a Limited Company director or via an Umbrella Company—significantly affects the financial documentation required and the questions asked.

If operating via an Umbrella Company:

If you are paid via an Umbrella Company, your financial assessment is often simpler, as you are typically classed as an employee of the Umbrella Company and receive regular PAYE payslips. Lenders will ask for:

• Recent payslips (typically 3–6 months).
• Your P60 form (Annual statement of pay and deductions).
• Bank statements showing the deposits of these payslips.

The calculation is usually based on your gross taxable income, similar to a standard employee.

If operating via a Limited Company:

Lending is more complex if you are a director of your own Limited Company because your income may be drawn through a combination of low salary and dividends, or you may retain profits within the company.

• How do you draw income (Salary vs. Dividends vs. Retained Profit)? Traditional high-street lenders often only assess the salary and dividends you have taken personally, ignoring retained profits. This can significantly reduce your apparent affordability. Specialist contractor mortgage lenders may be willing to use your gross contract day rate as the basis for calculation, ignoring the salary/dividend split entirely.
• Can you provide your HMRC Tax Year Overviews and SA302s (Self Assessment forms)? These documents are crucial for verifying all income declared to HMRC over the past two or three years. Lenders require proof that your declared income aligns with the figures used in the mortgage application. You can find detailed information on obtaining these documents from the official HMRC website.
• Can you provide full sets of certified company accounts? Most lenders require two or three years of fully filed and certified accounts to assess the profitability and stability of your business. They will look at trends in turnover and profit over this period.

Category 3: Questions Regarding Deposit and Credit History

Like any applicant, contractors must demonstrate financial responsibility and ability to save.

• What is the source of your deposit? Whether the deposit is from savings, a gift from a family member, or the sale of an existing property, the source must be verified to comply with Anti-Money Laundering (AML) regulations.
• What is your current credit score and history? A good credit profile is essential for securing the best interest rates. Lenders will perform a credit search to review outstanding debts, payment history, and any markers of financial difficulty (such as CCJs or defaults). Maintaining a clean credit history demonstrates reliability. You should review your file before applying to address any potential issues. 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)
• Do you have any existing large debts or financial commitments? Existing loans, hire purchase agreements, or credit card balances will be factored into the affordability calculation, reducing the maximum amount you can borrow.

Specialist Contractor Mortgages and Alternative Lending

Many high-street lenders struggle to process contractor applications using standard criteria, particularly if you have retained significant profits in your limited company. This has led to the rise of specialist contractor mortgage products.

Specialist lenders or brokers often use ‘underwriting by day rate’, which can be much more favourable. They accept that, provided you have a strong contract history, your annual income can be calculated simply: Day Rate x 5 days x 46 weeks. This method often results in a significantly higher borrowing capacity compared to lenders who only assess salary and dividends.

If you have unusual circumstances, such as short work history or credit challenges, you may need to explore complex options, including specialist secured lending or bridging loans, though these carry higher risks and costs. If you consider secured finance, be aware that Your property may be at risk if repayments are not made, which can lead to legal action, increased interest rates, and ultimately repossession.

People also asked

How much deposit do contractors need for a mortgage?

Contractors typically need the same minimum deposit as standard applicants, usually 5% or 10% of the property value. However, securing the best rates often requires a larger deposit, such as 15% or 20%, especially if your employment history is less than two years or your contract structure is complex.

Can I get a contractor mortgage with less than 12 months’ experience?

While challenging, some specialist lenders may consider applicants with less than 12 months’ contracting history, provided you have a very strong current contract, previous relevant experience in the field (as a permanent employee), and a substantial deposit. Lenders generally require a minimum of six months in contracting, but criteria vary widely.

How do lenders verify a contractor’s income if they pay themselves in dividends?

Lenders verify this income by reviewing your filed company accounts and your personal Self-Assessment tax returns (SA302s and Tax Year Overviews) for the past two to three years. They will typically use the average of the salary and dividends taken during this period to calculate affordability unless they are a specialist lender using the gross day-rate calculation.

Will a short gap between contracts affect my application?

Short gaps between contracts (typically four to six weeks) are standard and generally acceptable, provided the overall history shows consistency over the 12-to-24-month period. Lenders usually become concerned only if the gaps are lengthy or frequent, indicating potential difficulty in securing new roles.

Is it easier to get a mortgage if I use an Umbrella Company?

In terms of documentation, yes, it can be easier. If you use an Umbrella Company, you are classed as a PAYE employee, and the lender assesses you based on standard payslips and P60s, simplifying the process and avoiding the need for deep dives into company accounts or complex dividend structures.

Preparing for a Successful Contractor Mortgage Application

The key to a smooth application process is preparation and clear documentation. When facing the inevitable questions mortgage lenders ask contractors, having the answers ready helps build trust and confidence in your financial stability.

• Organise your paperwork: Ensure all contracts (current and previous), payslips, bank statements, certified accounts (if applicable), and SA302s are fully up-to- date and easily accessible.
• Calculate your annualised income: Understand how different lending criteria (day rate vs. salary/dividend) affect your maximum borrowing potential.
• Engage a specialist broker: Mortgage brokers who specialise in contractor finance are invaluable. They understand the nuances of contractor income, know which lenders use day-rate calculations, and can effectively present your case to underwriters who might otherwise reject a non-standard application.

By understanding what questions mortgage lenders ask contractors and preparing comprehensive, compliant documentation, you significantly increase your chances of securing the financing needed for your property purchase.