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IT Contractor Mortgages – What you need to know
If you’re an IT contractor looking to purchase a property, you will most likely have to take out a mortgage. Historically, people in more unpredictable employment circumstances (including contractors, freelancers and the self-employed) may have a harder time getting a mortgage than those on a more regular income.
The eligibility criteria for a mortgage usually focuses on financial circumstances and without a consistent income from an employer, you may not fit the bill for some lenders. Even if you consistently earn well above the average salary, working as a contractor, your circumstances can still cause lenders to look at your application differently.
Our Top IT Contractor FAQ’s
Yes, lenders may calculate mortgage eligibility based on the day rate and typical working days per week for IT contractors. This can sometimes increase borrowing potential compared to annual income calculations.
Income verification for IT contractor mortgages often uses contract-based underwriting, assessing gross contract rates and work history. Contractors should provide past and current contracts, tax returns, and bank statements.
Yes, it has become easier as more lenders understand self-employment. Specialist brokers can help navigate options, offering bespoke mortgage products tailored to contractors’ unique income structures.
Factors include contract length, work history, credit score, and deposit size. A consistent, well-documented financial history improves chances, and effort should be made to clear any debts for a better credit score.
An IT contractor mortgage is specifically designed for self-employed workers in the IT industry. It considers unique financial profiles and uses contract-based income assessments rather than traditional payslips or accounts.
Is it easier now for IT contractors to get a mortgage?
It is currently easier to get a mortgage as a self-employed IT contractor than it once was, as more and more people are choosing to enter non-standard forms of employment. Several mortgage lenders offer specific mortgages and repayment plans for contractors or those who are self-employed.
At The Mortgage Broker, we work with lenders who specialise in providing mortgages for contractors. We’ll help you put your application together so it has the best chance of success with the lenders we have relationships with.
What is an IT contractor mortgage, and how does it work?
An IT contractor mortgage is, in simple terms, a mortgage specifically designed for self-employed workers in the IT industry. The loan you take out is secured against the value of your new property until you pay it off over several years.
When you apply for a mortgage, the lender assesses your application based on how likely you are to keep up with mortgage repayments. They will take into account your credit history and your current financial circumstances. An applicant with outstanding credit, a stable income, and enough money to put down a large deposit should have little problem taking out a mortgage.
However, as a contractor, you don’t have the benefits of a stable income, no matter how much you earn from each of your various clients. The very nature of your work means that while you may earn a considerable amount one year, you are not guaranteed the same income in the following year. For this reason, IT contractors are seen as higher risk to some lenders, and it can be more difficult for them to meet the eligibility criteria.
There are more than 5 million self-employed workers in the UK and we recognise these people need houses too. Many mortgage lenders are meeting the increasing supply of self-employed workers by offering mortgages specifically designed for contractors. As a specialist mortgage broker, we understand the more irregular nature of contract work. By consulting with us, you may significantly increase your chances of being able to take out a mortgage.
How is an IT Contractor mortgage assessed?
An IT contractor mortgage is different from a standard mortgage in the way it is assessed. A conventional mortgage might take a more general look at how much an applicant earns each year balanced against how much they spend. A contractor mortgage, on the other hand, will drill more deeply into the applicant’s work situation.
The eligibility criteria will take into account factors such as the length of your current contract, your day rate, and the hours you have historically worked. A mortgage assessed this way might work more in your favour than a standard one.
Generally, yes. Contractors can apply for residential, buy-to-let, and even commercial property mortgages, provided the lender’s criteria are met and the financial assessment supports the application.
A strong credit score greatly enhances mortgage approval chances. IT contractors should aim to pay off outstanding debts, maintain regular payments, and avoid major spending prior to application.
Lenders may assess only personal earnings rather than company profits, so it’s crucial to separate personal income from business income when applying. Specialist lenders might consider the overall profitability of the company.
Key documents include current and past contracts, bank statements, tax returns, invoices, proof of address, credit report, and, if applicable, documentation relating to a limited company’s accounts.
Specialised brokers understand the nuances of contractor work and can connect clients with the most appropriate lenders. They help in structuring applications to reflect true income and financial stability.
How do you arrange an IT contractor mortgage?
Taking out a mortgage as an IT contractor can be slightly trickier than if you are in permanent employment. But as long as you can provide enough evidence in your favour, you should have fewer challenges. Here are some tips to improve your suitability:
What if you have a limited company?
If you have a limited company, the application process may be a little different. When assessing a company for mortgage lending, the lender may only take your personal earnings into account rather than the profitability of the company.
You may have a hugely profitable business while taking a low salary. In this case, we will need to look for a specialist lender who will look at all of your accounts. You will need to be able to distinguish between the money you hold and the money held by your company when making your case.
Speak to a mortgage broker
If you are an IT contractor looking to buy a property, it is best to talk to a specialist about your options.
Why Use The Mortgage Broker?
At The Mortgage Broker, it’s our vision to become the UK’s most trusted and respected mortgage broker. The only way for us to achieve this is by providing straightforward and transparent advice to each and every one of our clients.
From your first call to your last, we put customer service first before all else so you can be confident in getting expert mortgage advice.
While there aren’t exclusive products, some lenders are more favorable towards contractors and understand contract income risks. Brokers can guide applicants to these lenders for better rates.
Strategies include saving for a larger deposit, maintaining a strong credit score, and choosing a favorable day-rate income calculation. Engaging with a specialist broker and presenting comprehensive documentation also helps.
Partnering with someone in permanent employment can enhance stability in the lender’s eyes, potentially increasing approval chances and borrowing limits. This is particularly beneficial in joint mortgage applications.
These are crucial factors. Lenders often look at the length of current contracts and whether past contracts have been renewed to assess income stability and the likelihood of continued earnings.
Challenges include proving reliable income, managing credit scores, and meeting lenders’ varying criteria for contract workers. Consistent, well-documented financial records are key to overcoming these hurdles.
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