Mortgage for New Contractors: A Comprehensive Guide to Secure Home Financing

Getting a mortgage for new contractors is somewhat challenging in the UK because of several factors. Firstly, lenders tend to be cautious about offering mortgages to new contractors due to the uncertainty that comes with being self-employed. Secondly, lenders generally require solid proof of income before they’ll consider a loan application.

Over the years, we have received many enquiries from new contractors who are interested in mortgages, but don’t know where to start. To help them out, we’ve put together a comprehensive guide to securing home financing for new contractors in the UK.

Here we will explore the topic “Mortgage for new contractors” in detail and also answer the frequently asked questions such as

What is a new contractor mortgage?

Can I get a mortgage as a new contractor?

How much a new contractor can borrow as the mortgage?

What are the eligibility criteria for a new contractor mortgage?

How is a new contractor’s income accessed for a mortgage?

Which are the most suitable mortgage lenders for new contractor mortgages?

What is a new contractor mortgage?

A new contractor mortgage is a terminology lenders use for a mortgage loan taken out by someone who is newly self-employed.  In most cases, mortgages for a new contractor are similar to mortgages for self-employed, freelancers, sole traders, old contractors etc. However, the lending criteria set by every lender differs from one another. However, some lenders will look for additional details such as type of contract, credit score, length of contract, etc.

If you are a new contractor and interested in getting a mortgage and buying a property, you need to contact a mortgage broker who can help you with your mortgage application process.

Can I get a mortgage as a new contractor?

Yes, you can get a mortgage as a new contractor. Many lenders in the UK are willing to lend to contractors who have been self-employed for less than two years. However, the interest rate is likely to be higher, and the amount of money they will lend you might also be lower than usual. If you are interested in getting a mortgage as a new contractor, you can contact a specialist mortgage broker to help you with the application process.

How much a new contractor can borrow as the mortgage?

The amount of money you can borrow for a new contractor mortgage will depend on your income and the lender. Most lenders will consider any form of contract income, including zero-hour contracts. However, there are lenders that may impose restrictions on how much they’re willing to lend to a contractor who has been self-employed for less than two years. Generally, lenders may be willing to lend you up to four times your annual income, and in some cases more.

What are the eligibility criteria for a new contractor mortgage?

In the UK, eligibility criteria for a new contractor mortgage can vary among lenders, but generally, the following factors are taken into consideration:

1. Contracting History: Lenders typically require a minimum contracting history, which is usually around 12 to 24 months. Some lenders may be more flexible and consider applicants with shorter contracting periods. It is always better to contact a specialist contractor mortgage broker to help with your mortgage application.
2. Income: Specialist lenders will assess your income to determine your borrowing capacity. Contractors are often assessed based on their current contract rate rather than their annual income. Lenders may request copies of your contracts or reference letters from clients to verify your income.
3. Previous Experience: Lenders may consider your industry experience before you become a contractor. They may request your employment historyA record of a borrower's employment history, which may be us... or qualifications in your field to evaluate your expertise.
4. Type of Contract: Lenders prefer contracts that are fixed-term or rolling contracts rather than zero-hour or agency contracts. The stability and predictability of your income play a significant role in determining your eligibility.
5. IR35 Status: The IR35 legislation determines whether you are considered an employee or self-employed for tax purposes. Some High Street lenders may assess your IR35 status to evaluate your employment and tax obligations. However, criteria will vary from lender to lender.
6. Deposit: Like traditional mortgages, a deposit is required for a contractor mortgage. Typically, lenders expect a minimum deposit of 10% to 20% of the property’s value. The higher the deposit, the more favourable the mortgage terms may be.
7. Credit History: Lenders will assess your credit history to determines your creditworthiness. A good credit score increases your chances of approval and may lead to more favourable interest rates.

It’s important to note that eligibility criteria may vary between lenders, and some specialist brokers can help you find lenders who specifically cater to contractors. They can provide guidance based on your individual circumstances and help you find the most suitable mortgage options.

How is a new contractor’s income accessed for a mortgage?

When applying for a mortgage as a new contractor, lenders will assess your income in order to determine your borrowing capacity. Contractors are often assessed based on their current contract rate rather than their annual income. To verify your income, lenders may request copies of your contracts and reference letters from clients. Additionally, they may consider the stability and predictability of the contract when evaluating your eligibility. Furthermore, lenders may assess your IR35 status, as this can affect your tax obligations. We have discussed most of these criteria in the above article, but if you still need help, you can contact an experienced broker to help you with the loan application process.

Which are the most suitable mortgage lenders for new contractor mortgages?

Several mortgage lenders in the UK specialise in providing mortgages for new contractors. While availability and suitability can vary based on individual circumstances, here are some lenders are known for offering contractor mortgages:

The information is correct as on 14 Feb 2023

1. Halifax: Halifax has a reputation for being accommodating to contractors and considering contract-based income. They have specific mortgage products designed for contractors, offering competitive rates and flexible criteria.
2. Metro Bank: Metro Bank is known for its flexible approach to self-employed and contractor mortgages. They consider contract-based income and offer tailored solutions to suit contractors’ unique circumstances.
3. Clydesdale Bank: Clydesdale Bank has mortgage options designed for contractors, taking into account their contract income. They have experienced underwriters who specialize in assessing contractor applications.
4. Kensington Mortgages: Kensington Mortgages offers specialist lending solutions for self-employed individuals and contractors. They take a flexible approach to income verification and consider contract-based earnings.
5. Virgin Money: Virgin Money is open to considering contractors for mortgage applications. They take into account contract-based income and offer competitive rates for contractors with a solid contracting history.

There are many other mortgage lenders that can help you to get a new contractor mortgage, but you may need to contact a mortgage broker to help you with the application process and get the most suitable mortgage deal as per your profile.

Next Steps

Mortgages for new contractors may be considered more complex compared to other income types. It is important to carefully assess your financial situation and research different lenders’ products before deciding on the best option for your needs. Furthermore, you should also consider using a mortgage broker who can help you find the most suitable lender for your circumstances. Additionally, keep in mind that you need to provide documents to verify your income when applying for a mortgage, so make sure you have these documents ready. Lastly, consider speaking to a financial advisor to get the best advice before applying for a mortgage.

FAQs

Can I get a mortgage as a new contractor in the UK?

Yes, you can get a mortgage as a new contractor in the UK. Many lenders are willing to consider contract-based income and provide tailored solutions to suit contractors’ unique circumstances.

However, it is important to ensure that you have the necessary documents and information ready when applying for a mortgage, so make sure you research and prepare beforehand. Additionally, consider using the services of a mortgage broker or financial advisor to help you with your mortgage application process.

Can I get a mortgage as a limited company director?

Yes, you can also get a mortgage as a limited company director but you may need to provide details of your limited company accounts.

How can I get a mortgages for contractors?

The best way to get a mortgage for contractors is to conduct research and compare different lenders available in the market. As a contractor, you are likely to have different needs than those of other borrowers and so it is important to find a lender who can provide tailored solutions that suit your unique circumstances. Additionally, consider using the services of a mortgage broker or financial advisor who can help you find the most suitable mortgage deal.

Can I get a mortgage if my financial situation is not good as a contractor?

It is possible to get a mortgage even if your financial situation is not ideal as a contractor. However, the terms of the loan may not be as favourable compared to those offered to borrowers with better credit ratings. It is important to be honest about your situation and provide accurate information on your application so that lenders can make an informed decision. Additionally, it may be beneficial to have a cosigner or guarantorA person who guarantees to repay a mortgage if the borrower ... to increase your chances of getting approved for a mortgage.