Contractor Mortgages: Your Questions Answered

Contractor Mortgages

Contracting has become more mainstream in recent years, and while some mortgage lenders have yet to catch up, the world of contractor mortgages is less problematic than it used to be, as long as you know how to approach it. Here are the answers to some of the most common questions we receive about contractor mortgages.

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Do I need 3 years’ accounts?

Like a few of the more common questions, this one usually comes from people who have spoken to a high-street branch first, or last researched contractor mortgages some years ago. It’s possible that you might be asked for several years’ accounts but this is usually because the lender is misunderstanding your situation, and interpreting your flexible working pattern as an insecure income. Generally, even if you can provide all the evidence and this lender accepts your application, the fact that they see you as a higher risk will translate into a higher interest rate.

Our advice is to start the process by contacting a specialist contractor mortgage broker, who will have contacts at the lender who understand contractors and how they work.

Do I need a 50% deposit?

The larger the deposit you can save, the better, and if you can save a 50% deposit then by all means do so. However, once again this question usually comes up because someone is misunderstanding a contractor’s risk profile. A low loan to value obviously means the lender is taking less of a risk. Using a broker who specialise in contractor mortgages should neatly bypass this issue too, and you usually won’t need a bigger deposit just because you’re a contractor. 

Do contractor mortgages have higher rates?

Again, only if the lender thinks lending to contractors is more of a risk. Once you’ve involved a specialist broker, contractor mortgages come with the same range of deals offered to employees. To get the best possible mortgage rates, save the largest deposit you can and be sure to maintain a good credit rating. The better your risk profile, the better the deal you’re likely to get.

Is the application process complex and difficult?

Mortgage applications get more difficult with the underwriter’s perception of the risk. If they’re not sure that your income is secure, they may ask for more evidence and this can delay your application. Once again, a specialist contractor mortgage broker will have access to specialist underwriting terms, designed with contractors in mind. This means the lender is more likely to understand your position, and less likely to ask you for additional evidence.

Offset mortgages – can I use my limited company’s funds?

Offset mortgages allow you to use your savings to reduce the interest you pay on your outstanding mortgage. As a contractor you might often have large amounts of cash in your company accounts saved for your tax bills and other costs. It’s reasonable to wonder if you could use that money to reduce the interest on your offset mortgage. Unfortunately, as that money belongs to your company rather than to you, it can’t be used in this way. When calculating the cost of an offset mortgage, only factor in savings in your personal accounts.

Flexible mortgages – when to consider overpayments

A flexible mortgage will allow you to make over-payments, meaning you could pay your mortgage off earlier and potentially save a considerable amount in interest payments. They’re often a good bet for contractors, who can find themselves unexpectedly cash-rich after a run of high-paying contracts. Where the mortgage interest rate is higher than the rate you’d earn in savings, it can be a good idea to make additional mortgage payments rather than saving the surplus.

Where to go for help

Our partner CMME are one of the largest mortgage brokers in the UK, and they specialise in contractor mortgages. Their experts will be able to answer any further questions you might have.


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