As a contractor, securing a mortgage can come with unique challenges. Unlike permanent employees, your income can vary from month to month, and lenders may have different requirements for assessing your financial stability. However, with the right approach and preparation, you can overcome these challenges and secure the mortgage you need.
Here’s how to tackle the most common mortgage challenges contractors face.
1. Income Uncertainty
One of the most significant challenges for contractors is the perception of income instability. Lenders may be concerned about gaps between contracts or periods of downtime. To overcome this:
Show a solid contract history: Lenders prefer contractors with a stable track record, ideally 12–24 months of continuous contracting.
Provide future contracts: If possible, show proof of an upcoming contract or renewal to demonstrate your ongoing earning potential.
Highlight your daily or hourly rate: Lenders often prefer to calculate your income based on your contract rate rather than your historical earnings. This can lead to a higher borrowing capacity.
2. Short-Term Contracts
Contractors who work on short-term contracts may face difficulty securing a mortgage, as lenders tend to favour longer contracts. To address this:
Demonstrate your ability to renew contracts: If you’ve been consistently renewing contracts with the same clients, it shows stability.
Show evidence of repeat business: Provide references from clients that outline your history of continued work.
Consider bridging loans: Some contractors use short-term bridging loans to purchase a property and then refinance once they have longer-term contracts in place.
3. Limited Company Income
Many contractors work through a limited company, which can make mortgage applications more complex. Lenders may prefer to see salary plus dividends, but this can be difficult to prove when your income is variable. To improve your chances:
Use specialist lenders: Some lenders specialise in contractor mortgages and are more familiar with the way limited companies operate.
Provide clear financial documents: Having well-prepared accounts and self-assessment tax returns will help lenders understand your income.
Consider showing retained earnings: If your company retains profits rather than paying them out, show that this can be used as income to support your mortgage application.
4. Credit History Issues
Contractors with poor credit history can find it more difficult to secure a mortgage. If you’ve had credit issues in the past, here’s what you can do:
Check your credit report: Fix any errors and work on improving your credit score by reducing debt and making timely payments.
Consider a larger deposit: A larger deposit can make up for a lower credit score and help you secure a mortgage.
Explore specialist lenders: Some lenders focus on contractors with less-than-perfect credit histories and offer more lenient terms.
Final Thoughts
While securing a mortgage as a contractor may present some challenges, they can be overcome with the right strategies and support. Work with a specialist mortgage broker, keep your finances in order, and ensure you have a consistent income stream. With the right approach, you can get the mortgage that works for you.
At Contractor Mortgage Solutions, we are here to help contractors navigate the challenges of securing a mortgage.