Contractors
Contractor mortgages based on your day rate
Contractors are often told they must wait for two or three years of accounts, or are offered a loan based only on the modest salary and dividends they draw. Neither is necessary. Contractor-friendly lenders annualise your day rate and lend on that, which routinely doubles the figure on offer. 40+ years of experience, whole of market, no charge for the comparison.
How lenders assess contract income
Day rate times five times 46
The contractor method annualises your day rate and treats it like salary. It usually beats being assessed on dividends by a wide margin.
Six to twelve months' history
Most lenders want that much contracting behind you and 28 days left on the current contract — some will take a first contract in the same field.
Umbrella, limited company or CIS
All three are workable. CIS subcontractors can often be assessed on remittance advices instead of two years of tax returns.
Gaps are expected
Around six weeks of gaps across a year is fine with most lenders, and longer breaks usually just need a one-line explanation.
Contractor mortgage questions
What day-rate contractors, umbrella workers and CIS subcontractors ask us most.
- How do lenders work out contractor income?
- The contractor-friendly approach is to take your day rate, multiply it by five and then by 46 or 48 weeks, and treat that annualised figure as salary. A £400 day rate becomes roughly £92,000 a year. Lenders that do not offer this fall back on your company accounts or dividends drawn, which for most contractors produces a far lower figure.
- How long do I need to have been contracting?
- Commonly six to twelve months in the current line of work, with a contract that has at least 28 days left to run. Several lenders will accept a brand-new contractor where you are doing the same work as in your previous employment, and a few will consider a signed first contract that has not yet started.
- Does it matter if I use an umbrella company or my own limited company?
- Both are accepted. Under an umbrella you are technically employed, and lenders can use either the payslips or the underlying day rate on your contract — the day-rate route is usually the better outcome. Through your own limited company, the choice is between salary plus dividends, company profit, or the day-rate method, and the gap between them can be very large.
- What about gaps between contracts?
- Short gaps are expected and are not a problem. Most lenders allow up to about six weeks between contracts across the last twelve months without comment; some allow considerably more. A longer break usually just needs a brief explanation, such as a planned period off between engagements.
- Does IR35 status affect my mortgage?
- Not directly — lenders are concerned with the sustainability of the income, not the tax treatment. What it changes in practice is the paperwork: inside-IR35 contractors are often paid through an umbrella and produce payslips, while outside-IR35 contractors produce the contract and company figures. Both can be placed.
- I'm a CIS subcontractor in construction — can I use my day rate?
- Yes. A number of lenders assess CIS subcontractors on their gross day or weekly rate using recent payslips or remittance advices, rather than waiting for two years of self-assessment returns. That is usually a much better result than being treated as ordinary self-employed.