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Contractor mortgages explained

Lenders like to see stability of income to give them confidence that you'll be able to make your mortgage payments. For contractors some work contracts might only last for a few weeks or months at a time, making lenders nervous about how you'd meet your mortgage payments when the contract winds up.

Additionally, because income for contractors and freelancers can fluctuate from month to month, it can be difficult to know how much you could borrow on a mortgage. You can use our range of mortgage calculators to help you work out how much you might be able to borrow, and what your mortgage is likely to cost.

Despite the challenges that contractors can face, many lenders are willing to provide professional contractor mortgages, and some have even altered their lending criteria accordingly. Essentially, a contractor mortgage is the same as a mortgage for employed people - it may just be harder for you to secure one.

This is also true if you’re looking for a contractor Buy to Let mortgage. Lenders tend to treat Buy to Let mortgages as higher risk than standard residential mortgages, so when offering a Buy to Let mortgage for contractors, they will want to make sure that you have sufficient income on top of the rent to cover the repayments.

Here at L&C, we’re a contractor mortgage specialist and know which lenders are likely to accept contractors. We can support you through your application, including the steps you can take to improve your chances of being accepted.

Contractor mortgage process

The process for securing a contractor mortgage is the same as for any other type of mortgage. The first step is to speak to a contractor mortgage broker to find out what deals are available to you and which lenders are most likely to offer you a mortgage based on your personal circumstances.

Then, you can go ahead and apply for your mortgage in the normal manner. We’ll guide you through the whole process, supporting you with any questions you might have. If you’re looking for a contractor Buy to Let mortgage, you’ll find fewer lenders who are willing to offer this, so going through a broker like L&C may be the only way to access this type of deal.

Contractor mortgage eligibility criteria

Lending criteria for the best contractor mortgage rates vary between lenders and the deals you can access will depend on your circumstances.

Although you don’t necessarily need a higher deposit than those in permanent employment, it makes sense to put down a larger deposit if you can afford it. The higher your contractor mortgage deposit, the better deal you’re likely to get, so it’s wise to save as much as possible before applying for a mortgage in order to secure the best rate.

Lenders will look closely at your income to determine how much you’re able to borrow. Some will look at your income averaged over a number of years, whilst others will simply use your lowest yearly income as an indication of what you can afford.

Lenders like to see a history of consistent working so you should keep detailed records of your previous contracts, including any gaps. If you can prove a consistent working pattern, it’ll make the prospect of lending to you far less risky.

You may also be eligible for better contractor mortgage rates if you’re making a joint application with someone who is permanently employed. The earnings of both people will be taken into account, but a stable income from your joint applicant may help to secure you a better rate.

To get an idea of how much you could borrow for your home, you can do a calculation based on your day rate. You should multiply your day rate by the number of days you work in a week, and then by the number of weeks you work in a year. Remember to take holidays into account. This will give you an estimated annual income, which you can put into our mortgage calculator to work out how much a mortgage might cost you and what your monthly repayments are likely to be.

Contractor mortgage deals

As with any other type of mortgage, the bigger the deposit, the better the deal you’re likely to secure. As a contractor, you may be earning more than you would in a similar employed position, so try to take advantage of this and save up as much as possible.

You should check your credit report before submitting your application and take steps to rectify any mistakes on your credit history, as even the smallest discrepancy could impact your ability to get a good deal. If you have poor credit, it may be better to wait for a while until your credit score has recovered before taking out a mortgage. Again, this should help you to secure a better contractor mortgage rate.

As a contractor, your earnings can fluctuate, so you should take efforts to have as much consistent work as possible in the run-up to your mortgage application, so you have proof of a stable income.

You’ll also need to keep meticulous notes on your income and outgoings, including the following documentation:

  • Bank statements
  • Invoices
  • Tax returns
  • Day rate
  • Past and future contracts

If you have a limited company, you might take a low salary and supplement your income with other income. You may need to adjust the way you structure your income if this is the case, as lenders will assess your affordability only on your earnings from salary and dividends.

Contractor mortgage repayment plan

The repayment process for a professional contractor mortgage will depend on your mortgage type and your lender. If you take a fixed rate mortgage, then you’ll pay the same amount every month for the duration of the fixed rate term, which may be 2, 5 or 10 years. This might give you peace of mind as a contractor, if your income varies from month to month.

For contractors who opt for a variable rate mortgage, your monthly repayments could change from month to month depending on interest rates. Although this gives less stability, it may be a cheaper option in the long-run.

Contractor mortgages with L&C

Here at L&C, we’ll help you to find the best deal to suit your needs. As a contractor mortgage broker, we have the expertise to support you, as well as access to specialist lenders that you might not have access to otherwise.

Our online mortgage finder tool can help you to research the mortgages you might be eligible for. If you need any support, or just want to talk through your options, our expert advisers are on hand to recommend which mortgage is best for you, based on your individual circumstances. We’ll also help you through the application process from start to finish.

Get in touch now to see how L&C could help you - and remember, our advice won’t cost you a penny.

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Apply for a contractor mortgage with L&C

Contractor mortgages can be tricky to get, especially if your income tends to fluctuate or you don’t always have regular work, but at L&C we’re here to help you find the best deal to suit your needs.

Our online Mortgage Finder tool can help you research the mortgages you might be eligible for. If you need any support, or just want to talk through your options, our expert advisers are on hand to recommend which mortgage is best for you based on your individual circumstances.

We will also help you through the application process from start to finish, advising on which paperwork you’ll need to support your application. Get in touch now to see how L&C could help you, and remember, our advice won’t cost you a penny.

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Frequently asked questions

Can independent contractors get a mortgage?

Independent contractors can get a mortgage provided they meet lenders’ affordability criteria and can demonstrate that they have a consistent income. It can be harder for freelancers and contractors to secure a mortgage as the nature of the work means that their income may ebb and flow. However, it's not impossible and L&C can help you to find the best deals to suit your circumstances. Find out more in our guide: ‘How to get a mortgage if you're self-employed.’

How can a contractor get a mortgage?

Our advisers here at L&C are experienced at finding mortgages for contractors and the self-employed. They can advise which mortgage is best for you based on your individual situation and circumstances.

How can I strengthen my mortgage application as a contractor?

Contractors can boost their chances of having their mortgage application accepted by making sure they have proof of earnings from the last two or three years. If they can prove they have plenty of work going forwards, and if they can put down a substantial deposit, this can also help. Find out more about the importance of keeping your paperwork up to date if you’re self-employed.

How do contractor mortgages work?

Once you've spoken to a mortgage broker like L&C and have determined which providers are most likely to lend to you, the process works in the same way as any other mortgage application. We'll support you through the whole process and help you with the paperwork. We’ll also help you decide what type of mortgage is right for you, for example whether to go for a fixed or variable rate.