Getting on the property ladder can be a complex journey, especially for contractors who don’t fit the traditional mould of the permanent employee. Mortgages for contractors, particularly daily rate contractor mortgages, offer a path to homeownership for those working in various professional fields, including IT, engineering, and the construction industry. There are many lenders that won’t approve the mortgage application for daily rate contractors; however, there are some specialists that will offer mortgages for contractors.
Daily rate contractor mortgages are tailored to those who work on a contractual basis and aren’t given a long-term employment contract by the company they are working for. Depending on the lender, daily rate contractor mortgages can be available for up to 25 years with variable or fixed rates. The amount of deposit required can vary between different mortgage lenders.
In this article, daily rate contractor mortgages, we will explore the topic in detail. We will look at the eligibility criteria of contractors, the type of mortgages available, and the best rates available for daily rate contractor mortgages. We’ll also cover some lending tips to help make sure your mortgage application is successful.
What are the different types of daily rate contractors?
There are many different types of daily rate contractors, including:
1. Contractors who work on a daily or hourly basis are paid for the duration of their contract and then move on to a new contract with another employer.
2. Freelancers who are self-employed and choose to take on jobs on a short-term basis with different employers.
3. Locum workers who are employed by an agency to provide short-term cover for an employer.
4. Consultants who are hired on a temporary basis to provide professional advice and expertise.
5. Construction Workers who are employed on a short-term basis to complete construction projects.
There are also many other types of daily rate workers, such as HR contractors, legal contractors, and IT contractorsContractors working in the IT industry.. If you are a daily rate contractor, you can always contact a specialist mortgage broker to help you with your mortgage application.
Understanding Mortgages for Contractors
Traditionally, mortgage lenders base their affordability calculations on an applicant’s annual income, usually gleaned from payslips or company accounts. However, contractors are not conventional salaried employees, and their income patterns often vary significantly, making it difficult for them to provide ample proof of consistent income. This is where specialist lenders come into play, offering bespoke mortgage products designed for self-employed contractors, including daily rate contractors.
Daily rate contractors are professional contractors paid based on the number of hours or days they work, typically under a fixed-term contract or even zero-hour contracts. Their income could vary from week to week or month to month, depending on their contract terms and the hours worked. Despite the potential for gaps between contracts, these contractors often earn a substantial amount over a short period of time.
To cater to these unique work patterns, some mortgage lenders have specialist underwriting teams with decades of experience. They have a comprehensive understanding of the contracting industry and have developed specialist contractor criteria to evaluate mortgage applications. They can base their lending decisions on the contract rate or day rate of the contractor, considering their contract income instead of looking for a consistent annual figure.
The Role of Specialist Brokers
Applying for a mortgage as a daily rate contractor is often made easier with the help of an experienced mortgage broker. A specialist contractor mortgage broker has a vast knowledge of contracting and access to a range of lenders, from high street banks to building societies and specialist mortgage providers. These brokers can guide you through the contractor mortgage application process, helping you select the best mortgage options tailored to your individual circumstances.
A broker can also assist you with the contractor mortgage calculator, providing a precise estimate of the maximum borrowingThe maximum amount a borrower can borrow. potential based on your contract day rate. They can also help you navigate through contractor mortgage lending criteria, providing advice on how to strengthen your application.
Mortgage Application Process for Day Rate Contractors
Applying for a contractor mortgage involves providing the lender with details of your current contract, past contracts, contract history, and any gaps in contracts. They’ll also require your bank statementsA record of a borrower's financial transactions often requir..., usually 6-12 months, which could be personal bank statements or those of your limited company if you operate one. Other required documents may include proof of addressEvidence of a borrower's current address, such as a utility ..., proof of income, and if applicable, previous work history and SA302 statements or limited company trading accounts.
The lender will perform a credit checkA check of a borrower's credit history, which is used by mor..., so it’s essential to ensure your credit file, held by the credit agency, is accurate. Any adverse credit, such as County Court Judgements or issues with credit cards, may affect your application. Furthermore, being on the electoral roll can enhance your credit history and credit rating, improving your chances for a successful application.
Navigating Different Contractor Mortgages
The type of mortgage a daily rate contractor can secure will depend on various factors such as contract rate, contract type, and contract income. Mortgage products for contractors include regular mortgages, buy-to-let mortgages for self-employed landlords, and limited company mortgages.
Daily rate contractors might also be eligible for joint mortgages, which allow you to combine your income with a partner to increase your borrowing power. Interest-only mortgages could be another suitable choice, especially for those anticipating a significant increase in their contract rate in the future.
Understanding the Affordability Assessment
When applying for a contractor mortgage, the lender will conduct an affordability assessment. This is not solely based on the contract rate or annual income but also factors in other financial commitments. The assessment will consider any credit commitmentsAny existing financial commitments, such as credit card or l..., potential void periods between contracts, and the overall financial stability of the contractor.
Most lenders require a consistent track record, typically a 12-month track record of contracting. However, some contractor-friendly lenders might offer mortgage products to contractors with only 6-month contract experience, assessing their income on a discretionary basis.
The affordability requirements also encompass the contractor’s deposit, with most lenders requiring a minimum of a 10 per cent deposit. However, a larger deposit can boost your mortgage prospects and help secure a competitive mortgage deal.
Contractors have various mortgage options available, but it’s important to seek specialist advice before proceeding. An experienced mortgage broker or a financial advisor can provide valuable insights and guide you towards the most suitable deals.
Remember that while being a contractor may involve fluctuating income and potentially challenging loan applications, it does not reduce your chances of stepping onto the property ladder. Specialist lenders understand the nature of contract work and are ready to provide competitive rates and products tailored to your needs.
To conclude, daily rate contractor mortgages have levelled the playing field, providing the same opportunities for home ownership to contractors as those available to traditional employees. With the right advice and preparation, securing a mortgage as a daily rate contractor can be a straightforward process, taking you one step closer to your dream home.
What is a daily rate contractor mortgage?
A daily rate contractor mortgage is a type of mortgage that is specifically designed for self-employed contractors who are paid on a daily rate. These mortgages are typically more difficult to obtain than traditional mortgages, as lenders are more cautious about lending to self-employed borrowers. However, there are a number of lenders who specialize in contractor mortgages, and with careful planning, it is possible to secure a competitive mortgage deal.
How do daily rate contractor mortgages work?
Lenders will typically assess your affordability for a daily rate contractor mortgage by looking at your annualised contract rate. This is calculated by multiplying your daily rate by the number of days you typically work in a year. For example, if your daily rate is £400 and you work 200 days a year, your annualised contract rate would be £80,000.
Lenders will also look at your credit score, your employment historyA record of a borrower's employment history, which may be us..., and your financial commitments when assessing your application.
What are the benefits of a contractor mortgage?
There are a number of benefits to getting a daily rate contractor mortgage, including:
- You can borrow more money than you would with a traditional mortgage.
- You can get a lower interest rate than you would with a traditional mortgage.
- You can get a mortgage even if you don’t have a lot of savings.
What are the challenges of getting a contractor mortgage?
There are a few challenges to getting a daily rate contractor mortgage, including:
- Lenders are more cautious about lending to self-employed borrowers.
- You may need to provide more documentation to support your application.
- You may have to pay a higher interest rate than you would with a traditional mortgage.
How can I get a contractor mortgage?
The best way to get a daily rate contractor mortgage is to speak to a specialist mortgage broker. They will be able to help you find a lender who is willing to lend to you and they will be able to negotiate the best possible deal for you.