Have you tried using your contract rate to get a mortgage, recently? I know. Despite earning more than ever, the High Street won’t give you the time of day.
That’s because contract income is a specialist area. As such, no two mortgage lenders appraise contractors the same way. There is no official template for contractor mortgage lending criteria.
The truth is, most High Street mortgage providers do lend to independent contractors. But they do so through their head office via specialist brokers, not in branch.
This guide is gold, giving you information you can’t get at High Street level. It’s the lowdown on what all the UK’s contractor-friendly lenders look for in a contractor.
As a contractor looking to buy a home, you need to make informed decisions. This page is your go-to source, helping you buy a home safe in the knowledge you’ve got the right deal for you!
Contractors can access the same mortgage deals as everyone else. The big difference lies in how lenders underwrite contractor mortgage loans.
Affordability calculations lenders use to assess contractors' relevant earnings don't use accounts or payslips. They base how much a contractor can afford to borrow on their contract rate alone.
The mortgage market is a dynamic, often volatile backdrop to buying a home. It’s no surprise. Third parties can – and do – affect interest rates and lending guidelines. All mortgage lenders adopt different lending criteria for professional contractors.
Other factors can change overnight, giving rise to further uncertainty. The whims of shareholders, regulators and banking bosses all seem to orchestrate the market. And these elements are only the tip of the iceberg.
It’s work enough for industry leaders to stay ahead of the curve, let alone homebuyers. Especially contractors whose own workflow and income can fluctuate.
Given this constant flux, how can a contractor be sure which is the right mortgage lender for them? Let’s start by putting the myths to bed and concentrate on the facts.
First, we have a brief history of contractor mortgage lending. Part 1 takes in the early days before the global economic collapse. Part 2 looks at how lenders perceive the contracting community today.
Second, we look at the unique lending criteria lenders ask contractors to meet for a mortgage.
No two mortgage lenders underwrite contracting the same way. But then, no two contractors we help buy a home are the same, either.
This guide exists to help contractors find the right mortgage lender for their situation. It will help whether you’re:
In short: if you’re a contractor, we can get the right mortgage with the best lender for you!
What this guide doesn’t include is specific mortgage deals available right now. That’s because highest LTV/lowest deposits, introductory offers and interest rates change all the time. For up to date mortgage offers, please see the Contractor Mortgage Best Buy table.
With the dawn of the new millennium came a new hope. For none moreso than for professional contractors. The Woolwich developed and marketed what we can consider as the first contractor mortgage.
The Woolwich gained traction and a good reputation from the contractor community. Their underwriters based these new mortgages on contract rate, rather than accounts (or self-certification). At the time, ‘contract-based underwriting’ was a revolutionary leap of faith.
But that faith wasn’t repaid. The first introduction of contractor mortgages came at a time of uncertainty. Not only for the bank (as The Woolwich had become), but also for the economy.
First, Barclays bought the Woolwich in 2000. By 2007, they’d closed all Woolwich branches, migrating all accounts to the parent company.
Next, as 2007 unravelled, the prospect of economic meltdown became a certainty. The Barclays buyout plus economic collapse put paid to Woolwich’s contractor mortgage endeavours.
Cheltenham and Gloucester, Northern Rock and Santander all also toyed with similar products. But when the UK called for more responsible lending post-2008, all withdrew contract-based underwriting.
During the UK’s economic recovery, banks were impotent. Many owed a debt to the public purse. Those that didn’t proceeded with utmost care.
Regulators conducted the now infamous Mortgage Market Review. Responsible Lending guidelines ensued. Few, if any, mortgage providers broke ranks in the direct wake of the banking overhaul.
Some of the riskier ways of underwriting mortgages disappeared from shelves altogether. The self-cert mortgage was the biggest fatality. Good riddance to old rubbish was the byword in that instance.
But what hurt contractors most was the withdrawal of interest only mortgages. No, withdrawal is the wrong term. Lenders made interest-only, or endowment, mortgage criteria so safe, they became inaccessible to many.
While all this was happening in full view, another silent revolution was happening. The technological revolution would change the way mortgages work for contractors forever.
Allow me a little poetic license, for the sake of simplicity? Great. Then everything’s good with the world.
At the same time as the world recovered from economic collapse, it was also going digital. No world moreso than the financial industry.
Banks began hiring specialist contractors to build their frameworks by the drove. And these contractors didn’t come cheap.
It was this juxtaposition that inspired some bright spark at the Halifax to put 2 + 2 together.
Operating within the banking system were high-earning information technology professionals. And with IT at the heart of new banking, these contractors enjoyed a rosey, guaranteed future.
This is where the bright spark had their Eureka! moment. They realised that if these contractors needed a mortgage, it would be a non-starter. The bank could offer them no form of meaningful mortgage finance.
The short term nature of their contracts was one barrier. But the bigger hurdle was their payment structures.
The absolute majority of professional contractors operate through their own limited company. To avail tax breaks that make going limited worthwhile, they paid themselves little.
It was a conundrum!
Their low salary scuppered any chances of getting even a decent self-employed mortgage. Retaining profits within their business made the bulk of their income inaccessible to underwriters.
So how could banks and building societies get a piece of the contractor mortgage market?
The Halifax defined contractor mortgage lending as we know it today.
Among other earlier adopters were Virgin Money, who took over Northern Rock. Investec Mortgages, Saffron Building Society and select regional lenders also formulated contractor lending criteria.
What they did to attract contractors, and most still do, was to ignore company accounts. These lenders realised that salary and drawn dividends didn’t reflect a contractor’s mortgage affordability.
Realising was one thing. But accessing income tied up in accounts and proving that contractors were low risk? They were altogether different problems.
Lenders must prove that applicants can afford the repayments of their mortgage. In its simplest terms, this is the mortgage affordability equation:
Now, in-branch advisors work to a predetermined calculation. It’s this generic sum that scuppers contractors who look to the High Street for a mortgage.
The big difference for contractors compared to PAYE employees is the ‘salary’ factor. Knowing what income is or isn’t available is why specialist underwriters for contractors exist.
Rather than rely on in-branch staff, most contractor-friendly mortgage lenders use brokers.
It’s easier all round, this way. That’s because specialist brokers tend only to deal with niche sector borrowing.
They know what contract income is accessible for mortgage lending. Their criteria use contract value rather than monthly salary. They then extend the day or hourly rate to calculate an annualised salary.
For security, they consider contracts in hand and contracts in the future. For most lenders, a contractor’s relevant work history is also a factor.
The broker can use their industry acumen and know which lender’s best for the client at that moment in time.
As we said at the top, the contractor mortgage market is in constant flux. Getting a mortgage as a contractor is not the same as it is for employees!
But here’s the key difference between generic or in-branch advisors and a specialist broker. Specialists can package a contractor’s mortgage application showing only the information an underwriter needs.
No reams of accounts. No payslips going back to year dot. A genuine contractor-friendly broker will ask for:
And that’s it, as far as documentation goes. Where each lender differs is the weight they put on the variant factors. Lowest income thresholds, time served, breaks between contracts, credit history. Each element has a unique place in a lender’s appraisal of a contractor.
Most people take out a mortgage perhaps only twice or three times in their life. They’re not interested in background noise. They only want to see the picture when they’re ready to buy.
Contractors have different wiring. They’re business people, after all. When their introductory rate’s ready to expire, they want the next best deal for them.
So, whether it’s your first contract or one in a long succession, we can help. Whether you’re new to home buying or well versed, there’s a mortgage lender right for you. Here are the criteria specific to each of those lenders right now.
With the Halifax, contractors are good to go from day one of your first contract. To qualify, you must have two uninterrupted years work in the same industry.
The speed at which Halifax underwriters process applications is phenomenal. If you need a mortgage quick, they can often help.
The Halifax differentiates between IT contractors and those in other sectors. If you work in IT, there’s no minimum earning threshold. Contractors from any other industry sector must earn at least £312.50/day.
Your annualised contract rate is all the evidence of income Halifax needs. ‘Annualised’ means your day rate x 5 to get a weekly rate. Then x 48 weeks to give an annual gross income figure.
You must have 4-6 weeks left to run on your contract at time of application. If not, you need to ask your agency or client for a renewal or extension.
Halifax underwriters don’t like to see breaks of more than six weeks between contracts. This will be evident on your CV, a document they ask for as part of the application package.
Their affordability factor is between 4 and 5, depending on your status. That’s the number by which they multiply your gross income to get your borrowing ceiling.
We have a range of Halifax contractor mortgages in our Best Buy Table. Deposits and interest rates vary, so peruse at your leisure for deal-specific information.
Clydesdale Bank has been a stalwart in our contractor mortgage portfolio from the start. One reason’s because the bank’s underwriters have a penchant for manual underwriting.
Its lending criteria avails Clydesdale to contractors with at least 2 years’ work history. Applicants must show this experience on their CV as part of their application package.
The exception to the 2-year history rule is for contractors who have at least 30% deposit. For 70% LTV mortgages, they’ll consider applications if they’re packaged in an amenable fashion. Your broker can help you with that detail.
The income entry level for a Clydesdale contractor mortgage is £50k per annum. The bank doesn’t differentiate between sectors, considering all contractors as independent professionals. As such, they offer competitive rates to all contractors who qualify.
Their underwriters like to see at least one contract renewal. A copy of your current and previous contract will satisfy their lending criteria. This is, in part, due to the way Clydesdale works out contractor mortgage affordability.
Mortgage underwriters use 46 weeks as the annualising factor. But they then derive annual income over an average of the last two year’s contract earnings. If a contract is for less than 35 hours per week, they’ll determine affordability pro rata.
In addition, the Clydesdale frowns upon breaks between contracts of more than 6 weeks. Offshore income structures are likewise of limits.
They also ask for 4-6 weeks left to run on a contract. If your current contract cover is for less, you must secure a renewal promise or extension.
Nationwide understands that not all contractors earn 4-figure sums week in, week out. For those on more modest income, the building society offers genuine flexibility.
Nationwide has neither a minimum income threshold nor industry-specific demands. They offer mortgages to contractors on any income in any sector.
What they ask for instead is at least twelve months contracting history in the same industry. This satisfies part of their risk assessment, but has another use.
Most contractor-friendly lenders ask for at least 4-6 weeks contract run out. Not Nationwide. If you have minimal time left to run, they’ll drawn on your work history to satisfy their criteria. This could include current demand for your skill and how long you’ve been in that industry.
Taking this stance negates the need for a CV. The lender doesn’t ask for business bank statements, either. One month’s personal bank statement satisfies Nationwide’s contractor mortgage lending criteria.
To work out how much you can afford to borrow, Nationwide uses a different calculation.
Their underwriters take your weekly rate and extend that over a full 52 weeks. They then use 80% of that extended figure to annualise your income to work out affordability.
Why 80%? In part, because the lender allows up to 12 weeks breaks between contracts in a year. That’s double the amount most banks and building societies like to see.
The last step is to multiply that ‘annualised’ figure by either 4.5 or 5. This allows contractors on lower incomes to maximise their gross contract income.
NatWest took the plunge into the contractor mortgage market in late 2016. Mm, perhaps ‘plunge’ is generous. The bank’s lending criteria is strict, so “dipping their toe” is maybe more appropriate.
The minimum income contractors must achieve for a NatWest mortgage is £326.00/day. As a gross, annual income, that’s £75,000.
Contract cover/history is also important to NatWest. An initial look at their lending criteria can give the wrong impression, though. The bank asks for at least six months history and six months’ future cover.
Now, experienced contractors will see the anomaly straight away. Most contracts are for six months tops. So how does at least six months’ future cover work?
What NatWest underwriters do is take in the whole year around the date of application. This allows them to request only one month remaining on your current contract when you apply. Anything less, and you must apply for a renewal/extension.
As I say, if you took NatWest’s contractor lending criteria by the letter, you may think them off limits. For contractors with at least one year’s history, nothing’s further from the truth.
NatWest’s unique criterion may trip some applicants up. To get a NatWest mortgage, contractors must own 100% of the shares in their limited company.
Now, many contractors give shares to their spouse or another named party. If you do, you can’t use your contract to apply for a NatWest contractor mortgage. Nor can umbrella contractors apply.
Like other contractor-friendly lenders, NatWest uses 46 weeks to annualise income. They also use either 4.5 or 5 as their affordability multiplier.
Other supporting documentation includes your CV, which must be up to date. The mandatory proof of ID and 3 months’ bank statements also apply.
You can’t get Accord contractor mortgages on the High Street. The lender, part of Yorkshire Building Society, only deals with contractors through intermediaries.
Freelancer Financials is one of four brokers piloting Accord’s contractor mortgage programme. As with NatWest, the Accord pilot scheme is a toe dip with a high level of entry.
Contractors must earn at least £400/day to satisfy Accord’s lending criteria. They must also have 12 months’ contracting history and 3 months left to run on their current contract.
If you can’t get a renewal, there’s another option. Accord’s underwriters will still consider contractors with less than 3 months’ contract in hand. But to qualify, you must have a 2-year continuous track record as a contractor.
You’ll have to support this history and current contract cover with your application. You’ll need an up to date CV, current contract, proof of ID and 3 months bank statements. You’ll then need to provide copies of contracts covering the last 12 months work history.
One way Accord affords a little more flexibility is by allowing up to 8 weeks break between contracts.
Another is that they do make exceptions for umbrella contractors. They understand that umbrella contractors may not earn as much as independent contractors. What they ask for instead is two years of consistent contract earnings.
To work out mortgage affordability, Accord’s calculation is akin to that of Nationwide. Their underwriters will work out a full 52 weeks income based on your contract rate. They’ll then use 80% of that in their calculation.
Their affordability factor is 5.49 for mortgages up to £500k. Beyond that amount, the factor drops to 4.
Leeds Building Society took the contractor mortgage market by storm in 2015. Since that pilot programme, it’s raged like a tempest, breaking down many traditional barriers.
The variations of different mortgages Leeds BS offers to contractors is extensive. In short, they’ve freed up their entire mortgage range to accept contracting professionals.
Leeds’ minimum contract income for mortgage qualification isn’t excessive, either. £50k is all the lender asks, which is only £217/day. For their interest-only mortgages, there’s no lower limit at all on contract income.
Neither does the building society mind in which industry contractors earn their crust. All contractors can apply for Leeds Building Society mortgages.
Another way Leeds offers more flexibility is the breaks it allows between contracts. Most contractor-friendly mortgage lenders specify total weeks they allow per year. Not so with Leeds; the lender permit breaks of up to six weeks between contracts.
“Well, what difference does that make?”, you might ask. “Most contracts are for six months, anyway.”
Well, Leeds minimum contract history to qualify for any of their mortgages is 12 months. They also need to see at least one renewal (same or different client).
Providing you meet those criteria, Leeds underwriters acknowledge 1-2 month contracts. This, in turn, means that they accept applications even with little time left to run on a contract.
Their underwriters even consider contractors working on multiple contracts for a mortgage.
With regards to the affordability calculation, here’s an overview.
Leeds take your day rate and annualise it. They get your annual income from your weekly rate x 46. They then apply 4.5 to that annual income to get your maximum borrowing potential.
To support your application, you’ll need proof of ID, up to date CV and your current contract. You’ll also need to provide 3 months’ business and personal statements. Plus your contracts going back over the last 12 months.
For all mortgage variations on offer to contractors, see Leeds lending criteria in detail.
Scottish Widows, like Halifax, falls under the Lloyds Banking Group umbrella. Scottish Widows entered the contractor mortgage market in 2015. But with the Halifax so well established, why did Lloyds bother?
Well, Scottish Widows lending criteria is a carbon copy of the Halifax. They like to see no breaks of more than 6 weeks between contracts. Contractors must earn £312.50/day (no limit for IT contractors).
The lender uses 48 weeks to annualise contract income, with an affordability factor of 5. Both independent professionals and umbrella contractors can apply. Yep, check, check, check – it’s all the same as Halifax.
Well, the difference Scottish Widows makes isn’t how they appraise contractors. It’s the type of mortgage they offer.
Like many of our newer lenders, Scottish Widows is bringing back Offset Mortgages in a big way. That’s where your savings offset your mortgage balance.
Imagine you have £20k in savings and a mortgage balance of £220k. With an offset mortgage, you’d only pay interest on the difference. In this example, £200k (£220k – £20k).
But that’s not all. Scottish Widows is also offering interest-only mortgages, another product seeing a renaissance. The barriers to entry are a lot higher, given the additional risk of no physical repayment. And, yep – this type of mortgage is a little more involved.
The Scottish Widows lending criteria page has details of all their contractor mortgage products.
Vernon Hill founded Metro Bank in the wake of the housing bubble burst. That was in 2010, launching as a ‘challenger’ bank. They got that right!
Metro Bank’s contractor mortgage lending criteria is a lot like that of the Leeds’. The bank welcomes contractors from any walk of life with no minimum earning threshold. That’s both umbrella contractors and independent professionals, alike.
12 months’ contracting history is imperative. Their underwriters annualise contract income over 46 weeks. They have an affordability factor of 5 x that annualised income.
Plus, Metro asks for no specific time left to serve on a contract. That said, it’s worth asking for an extension or renewal if you’ve less than 4 weeks contract cover. It will satisfy your own peace of mind as well as any lending criteria.
Documentation Metro Bank asks for is also akin Leeds. It’s important to get this right as Metro scrutinises each application on a manual basis.
You need to provide copies of your current and last 12 months’ contracts. Your CV must also be up to date ready to send with your application package.
The difference between Metro and Leeds lies in bank statements. Metro asks for 3 months’ business bank statements, which is the same. But their underwriters only request one month’s personal statement.
You must also evidence your current rent or mortgage repayment. And you must prove that you have a deposit, at least 15%, ready to put down.
Metro Bank is challenging on all fronts, no less than through their contractor offering.
It will surprise longer-serving contractors to see Virgin Money so low on our list. They were one of the banks who opened up for contractors before the 2007 housing bubble popped. And once the economy began to improve, Virgin were there again, leading the market.
In more recent times, though, Virgin’s lending criteria has distanced it from contractors. Of all our contractor-friendly lenders, they’re the only one going backwards.
One insight into the convoluted nature of Virgin today is in contract duration. Contractors on a 6-month contract can apply for a mortgage, as can those on a 12-month contract. But there’s no room at the inn for those on 9-month contracts.
If you’re on a 12-month contract, you have to prove a further one year contracting history. You must also have at least six months left to run.
But if you’re on a more standard 6-month contract, you must prove two years history. You can have no less than three months left on you contract, either.
In both instances, you should have no more than two months between contracts.
If anything, Virgin Money’s lending criteria works better for umbrella employees. There’s also a loophole for those who’ve recently switched from umbrella to independent contracting.
In May 2016, we did get a call from Virgin Money’s team. They told us that they were planning to simplify their contractor mortgage policy.
We’ve not had that call yet, but when we have that new detail, we’ll update this section for you. For now, here’s a link to Virgin Money’s current contractor mortgage lending criteria.
That Kensington opened its doors to contractors didn’t surprise us. As their slogan alludes, the intermediary-only lender is “Simply Specialist”.
Even now, mainstream lenders perceive mortgages for contractors as niche products. When specialist lenders like Kensington only use brokers, it helps explain why that’s so.
Kensington’s contractor lending criteria is sympathetic, as you’d expect. Perhaps moreso than other lenders, as they will consider imperfect credit history.
The lender’s underwriters have no minimum contract rate you must meet. The industry in which you contract is also of no consequence. All contractors can apply, no matter what their income or specialist skill/sector.
What Kensington does expect is a 12 month contracting history from applicants. They don’t like to see unexplained breaks between contracts exceeding six weeks.
For meeting those criteria, contractors can expect a fair appraisal. Kensington’s underwriters assess each application on merit on a per case basis.
The lender, like many others, uses 46 weeks to annualise contract income. So if your day rate is £200 over a 5-day week, your annualised income is £46,000.
Your income is only one factor Kensington uses to help determine how much you can borrow. If you have special circumstances, they could well be the lender for you.
In 2016, Saffron Building Society made it easier for contractors to access their mortgages. They reduced both the length of contracting history and contract in hand applicants needed.
Saffron used to stipulate “two years as a contractor, contracting in the same industry”. Now, Saffron still expects two years industry experience, but not all of it has to have been as a contractor. In fact, with the right track record, contractors can get a mortgage from Day 1 of their first contract.
The lender also used to expect a lengthy run out period of the contract at time of application. Now, contractors with less than six months can approach Saffron for a mortgage.
Your CV must be up to date and show the relevant history. You must also supply a copy of your contract with your application. And, whether you’ve been contracting or not, you must provide three months’ bank statements.
In return for meeting Saffron’s contractor mortgage lending criteria, you get an amazing package.
The lender uses 48 weeks to annualise contract income and has their own manual scoring system. This means they don’t have to rely on an external credit rating.
Using manual underwriting has opened up another door. We are working longer, fact; many retirees are now setting up in business. So much so that Saffron’s dropped the notion that you’re unmortgageable past 65. Now, even if your mortgage takes you past 75, you won’t get an automatic rejection.
The lender offers repayment mortgages from as little as 10% deposit. And with them another adding interest-only, Saffron offers real mortgage choice for contractors.
The Furness Building Society’s lending criteria for contractors is one of the more stringent. The lender doesn’t penalise for a less than stratospheric income. They also have accept contractors from any industry.
Of all the mortgages we offer, The Furness’ is perhaps most akin to a salaried employee’s.
You must have a solid history with at least one renewal with the same client. Failing that, you must have more than six months left to run on a 12-month contract.
You must also demonstrate two years’ experience in the same industry. Your CV and copies of those historic contracts are a must to support your application.
Your history should not show any significant breaks between contracts. That said, Furness will consider contractors who’ve had a break from contracting. A ‘break’ should not be more than six months. And they must have been back contracting for the six months leading up to the application.
The least deposit Furness will accept is 20% from contractors. For that, they will annualise your contract over 46 weeks.
Furness is one of the smaller lenders in our portfolio, but remain worthy of their place. For contractors with experience, the lender is a break from the norm and a viable option.
The Newbury Building Society is another lender with a manual approach to underwriting. They’ll appraise each application on merit, and are flexible, to boot.
Another smaller lender, the Newbury doesn’t set stall by industry or income. They accept applications from all contractors, whatever their income.
As with the Furness, their limited size means turnaround is not as quick as bigger lenders. But if you prefer the personal touch, they offer that genuine connection.
To make sure the turnaround is as swift as possible, always use a specialist broker. With both Newbury and Furness building societies, existing relationships are essential. We have those in place with both sets of underwriting teams.
As mortgage lenders realise what they’re missing with contractors, more are coming on board. As well as those listed above, we’re negotiating with many other recognisable lenders.
Some of those we’re talking to are staying in the ‘self-employed mortgage’ camp. That means they will deal with contractors, but using their accounts. If you’re a seasoned contractor, this could offer a great way to buy your next home.
Others are looking at creating their own unique contract-based underwriting. As we finalise details, we’ll add their lending criteria to the overviews in this guide. Until then, if your preferred mortgage provider is in this list, talk to us. We’re happy to talk to them on your behalf:
Whilst many lenders are coming around to contracting, not all acknowledge the sector. Lenders who do not offer mortgages to professional contractors are:
Is your preferred bank or building society not amongst the lists? Give us a call. We are a whole-of-market broker and can approach any lender on your behalf.
Found your favourite mortgage lender and happy with the info? Great. Give us a call at 020 8421 7999. We’ve given you the critical lending criteria for all UK contractor-friendly mortgage lenders. The next step? Your move!
John Yerou is the owner and founder of Contractor Guides; a trading style & trade mark of the award winning Mortgage Quest Ltd. One of the most recognised names in providing mortgages for contractors and freelancers across the UK.
In 2004 John began his career in Financial Services as an independent mortgage adviser and broker. John has been instrumental in negotiating bespoke underwriting for contractors with high street lenders.
His presence in the industry as a go-to expert is growing by the day and he is regularly cited and writes in publications both locally and nationally.