Your IT expertise keeps businesses running smoothly – your mortgage process should be just as efficient.
Working as an independent IT contractor offers you flexibility and higher rates of pay but it can sometimes create issues if you need to apply for a mortgage.
High street lenders can struggle to fully understand your employment status and how you get paid. Your accountant keeps your declared income low for tax purposes, but this does not impress mortgage lenders.
Despite the challenges, there are many lenders that do understand how contractor finances work. They are able to accept different types of contractor employment status and sources of income.
Discover lenders who value your contract-based income and offer mortgage solutions designed for the dynamic pace of the tech industry.
Understanding mortgages for IT contractors
An IT contractor mortgage is not really a ‘type’ of mortgage product.
Contractors should be eligible for any mortgage that a fully employed person could get.
However, the lenders that do offer mortgages to IT contractors understand your style of employment, how you get paid and are willing to offer loans on this basis.
Regardless of your industry there is usually a mortgage lender who’s able to help.
There is more income flexibility in the eligibility criteria when compared to a standard mortgage. This acknowledges the lack of a fixed salary and the variable nature of contract based income.
The usual types of mortgages will be accessible: first time buyer mortgage, home mover, remortgage, debt consolidation, buy to let and holiday let.
Eligibility criteria
While specialist lenders will be empathetic to how you earn your living, there are still some basic details that all borrowers need.
The basic mortgage eligibility criteria:
- Minimum age 18
- Good credit score
- At least a 5% deposit
- Low debt to income ratio
- Good affordability
There is also eligibility criteria specific to contractors.
A minimum of two years trading will get you a good choice of lenders but there are options if you only have one year.
Contracting experience
Lenders prefer to see that you have worked in the same occupation for the last six to twelve months.
Employment gaps
The fewer the better. Anything beyond 6 weeks in a year could start to limit your options.
Remaining contract term
Lenders will want to check your contract and ideally this should have at least six months to go.
Renewable contracts
Having a renewable contract will give lenders some confidence. Even better if you can show that it has previously been renewed.
Pop in a few contact details and a qualified broker will call you back when convenient.
Types of mortgage
You will have the full range of mortgages available to you. Although the specific choices will differ between lenders.
Residential
Residential mortgages are for the home that you live in. A purchase mortgage will allow you to buy a property and a remortgage switches an existing mortgage to a new lender.
Options are available for first time buyers, guarantor mortgages and JBSP mortgages.
Investment
Investment property mortgages would be for:
Interest rates
The actual rates will always depend on the lender but the main interest rate options are:
Fixed rate: Fixed interest rate mortgages are available in a range of different terms, usually between one and ten years. Once the fixed rate starts your monthly payments won’t be affected by interest rate changes.
Tracker rate: A tracker rate mortgage is a type of variable rate mortgage, which means that the interest rate you pay can go up or down in line with the Bank of England’s (BoE) base rate. Unlike fixed-rate mortgages, a tracker rate can change so the amount you pay each month could go up if interest rates rise.
Variable rate: Variable rate mortgages are linked to the lender’s Standard Variable Rate (SVR). The interest rate you pay will be set by your lender and won’t necessarily rise or fall in line with changes to the Bank of England Base Rate. Your repayments will change when the SVR changes.
Repayment methods
The repayment method is the way that you will pay the mortgage back. There are actually three different options but not all of these will be permitted by your lender.
- Repayment – The traditional capital and interest mortgage where you pay back some of the mortgage each month.
- Interest only – With an interest-only option you only pay the mortgage interest each month and nothing towards the capital sum.
- Part and part – A part and part mortgage is a combination of 1 & 2 above.
Mortgage term
The term is the number of years that your mortgage is setup for.
Traditionally, the standard mortgage term has been 25 years. With rising mortgage and housing costs borrowers are now choosing longer terms, such as 30 and even 40 years. These are sometimes called marathon mortgages.
The term will directly affect the monthly cost of a repayment mortgage, the longer the term, the lower the repayments.
How much can an IT contractor borrow
Those people that are employed or self-employed will have their maximum mortgage based on their annual income. This can be confirmed via a recent P60 or SA302 tax return.
As an IT contractor you ideally want to find a lender that will lend against your daily contract rate. There are many lenders that won’t offer this, they prefer to use the more traditional method of annual accounts.
But a lender offering mortgages for contractors will be more flexible and understanding of your situation.
As a self-employed contractor, your accountant will be looking to maximise the tax efficiency of your finances. So you pay less tax.
This is excellent, of course. But it does not help when getting a mortgage.
Your mortgage broker will want to use your gross day rate rather than your accounts or self-assessment figures. This will give a much larger mortgage amount.
For example a day rate of £400 could potentially qualify for a mortgage of £480,000.
But for this to happen they need to work with a lender who understands contractors and their earnings structure. A contractor-friendly lender will be happy to use an annualised day rate over 46-48 weeks of the year, to determine the mortgage they could lend.
Below you will find our Contractor Mortgage Calculator. This calculator is designed to give contractors a rough guide to how much they could potentially borrow. Just put in your day rate and the average days you would work each week.
Contractor Mortgage Calculator
This simple mortgage calculator will quickly work out how much you could borrow as a contractor.
Contractor Mortgage Calculator
This simple mortgage calculator will quickly work out how much you could borrow as a contractor.
How much do mortgages cost?
The cost of a mortgage is affected by the loan size, the interest rate and the loan term.
You can use our mortgage calculator to accurately calculate the monthly repayments.
These pages may also be of interest:
Average Mortgage Payments: Understand what homeowners across the country are paying and how property location can affect your mortgage outlay.
Mortgage Repayments Guide: Learn more about the monthly cost of different mortgages, including repayment and interest only.
How much do you need to earn: We explain mortgage affordability and give a guide on how much you need to earn.
How to apply
Choosing the right lender is so important as not every one offers mortgages suitable for IT and software contractors.
Before applying, ensure you have the necessary paperwork.
Self-Employed:
- Certified accounts (ideally the last 3 years, though some lenders may consider less)
- SA302 tax calculation forms to show your income history
- Contracts, both past and present
Partnering with a mortgage adviser who specialises in helping people within the IT industry can be a game-changer.
It means they know where to look for lenders who cater to your unique needs instead of wasting time with those who may not fully appreciate your situation.
Before formally approaching a lender, you may want to test the water with a decision in principle (DIP). This is a mini application, that doesn’t affect your credit file, but does give a strong indication of how a lender feels about you.
It can then give you the confidence to move on to a full application, knowing what your borrowing limit is.
Whichever way you choose, your mortgage adviser will be there to help you.
Improve your chances of success
Getting yourself organised and ‘mortgage ready‘ before applying for a mortgage is one of the best things you can do.
Whether you are buying your first home or thinking of moving somewhere new, there are a number of ways that you can improve your situation, which will also speed up the mortgage process.
It’s really important to allow yourself enough time to gather everything together.
Credit status
Get a copy of your credit report. The report will show all sorts of credit related information and you need to make sure that it is all correct. Any errors need to be fixed.
Mortgage broker
Speak with a mortgage broker, they will be able to see how well you ‘fit’ a lenders criteria and can make practical suggestions and tips on how you can improve your situation.
Decision in principle (DIP)
Ask your mortgage adviser whether a Decision in Principle, or DIP, would be a good idea. Most first time buyers will benefit from one. A DIP or AIP will provide some extra confidence in your ability to borrow the size of mortgage you need.
Electoral roll
One factor that can greatly impact your mortgage application and creditworthiness is your presence on the Electoral Roll. The Electoral Register, is a comprehensive record of eligible voters in the United Kingdom. Am I on the Electoral Register?
Financial Associations
If you have previously applied for any type of credit with another person, the Credit Reference Agencies (CRA) will have ‘linked’ you to the other party. If an old or irrelevant financial association is still on your report, it is important to remove it.
Paperwork
Get your paperwork in order. The main documents needed are: Driving licence, Passport, Utility bills, Company accounts, Self-assessment returns, SA302, contracts, Bank statements, Proof of deposit
Pay your bills
on time. (always)
Don’t apply
for any more credit before or during the mortgage application process. This could seriously damage your chances of being approved.
Credit limits
Stay well within your credit limits and if possible, reduce any debts held on credit cards or store cards.
Mortgage broker
Contact an experienced mortgage broker. Oh, we said that already. Don’t forget!!
How a broker can help
The best way to find and compare deals is by using a qualified whole of market mortgage broker. An experienced broker will do the research on your behalf, finding your ideal mortgage from over 100 lenders.
They will understand your industry, your pay structure and the lender’s that favour careers like yours.
Finding the right lender can increase your borrowing power, but going to the wrong lender could mean facing rejection.
Searching for your own mortgage is very time-consuming and can also be quite confusing. While some people are happy to do this themselves, others recognise the advantages of using a qualified broker.
- What is a whole of market mortgage broker?
- What does a mortgage broker do?
- Do mortgage brokers charge a fee?
- Why should you use a mortgage broker?
- Why would you use a mortgage broker instead of a bank?
- How do mortgage brokers get paid?
- Mortgage broker vs Bank: Which is better for you?
- What are the advantages of using a mortgage broker?
- Ten Reasons to Use a Mortgage Broker
Yes. With a joint mortgage both of your incomes are taken into account. So if the other person has a reliable and provable income then this can only strengthen your chances.
No. You won’t be charged a higher rate or be penalised for being a contractor or software engineer.
Possibly. If your income doesn’t quite stretch to the size of mortgage that you need then maybe bringing in a guarantor could help.
Self-cert mortgages were popular among contractors, as no proof of income was needed. They are no longer available after a tightening of the mortgage regulations.
You won’t need a larger deposit just because you are a contractor.
A 5-10% deposit will be possible. But the more money you can put down, the more likely you will get offered a better deal.
Also having a higher deposit will help to offset the negative perceptions of being a contractor and will help to reduce the lender’s risk.
A mortgage broker will be able to find the most suitable lender for someone in your position, saving you time and energy.
There are quite a few lenders that shy away from anyone that works on a contract basis. For them the idea is just too risky.
An experienced adviser will know which ones are suitable.
Yes, mortgages are available for first-time buyers.
We work with one of the largest and most experienced independent mortgage brokers in the UK.
They have been experts in the mortgage industry for over 45 years, so they understand the challenges that clients can face when looking for a mortgage.
With qualified advisers based across the UK, they have the experience and expertise to help guide you through the complex process of buying a house, remortgaging, raising bridging finance or investing in the property market.
Fully FCA regulated, they have more expertise across more lending solutions than any other broker and have specialist teams in place to work with clients through every stage of their journey.
To get started please call us on 0330 030 5050 so we can match you to a specialist broker, or use the form below.
Find a mortgage broker
Ready to explore your options?
If you’re just about to start a new mortgage journey and could use the guiding hand of a professional, don’t hesitate to reach out to a reputable mortgage broker.
An independent mortgage broker can access over 100 lenders on your behalf. They will make the process smoother and more profitable than going it alone.
Keep reading, keep asking questions. The more you know, the better decisions you can make.
