Contractor Joint Mortgage

How does being a contractor affect your eligibility for a joint mortgage?

When you’re a contractor, you could be viewed in a few different ways. Regardless of whether it’s a sole mortgage or joint mortgage, your income will be looked at in a particular way. We’ll no doubt talk much more about this in a moment.

The fact that it’s a joint mortgage is fine, because the lenders look at each person on the mortgage individually. One person might be a contractor and one is employed, in which case we only look at contractor criteria for the one person. Or, you might both be contractors and that’s fine, too. We would use the contractor criteria for both of you.

It being a joint mortgage doesn’t make too much difference. We look at your income individually either way.

What documentation is typically required for contractors applying for a joint mortgage?

We ask everyone for personal bank statements, showing their major outgoings. For a contractor, we’re going to want to see your income on that account, although it depends how you’re set up as a contractor.

You might be a sole trader and all the money goes into one main account, which is fine. You might have a limited company for your contracting, which we’ll talk about more in a minute.

If you do work through a limited company, we’ll want the bank statements for the company as well, to show the money coming in. It’s the same as if you’re employed – we want to see your salary go in and your regular costs go out.

Then we need to see your contract or contracts. It depends on the timing. We might want your current contract, and if that’s about to end and you’ve got another one lined up, we might request that one as well.

Depending on how far through your contract you are, we might want your previous one. We’re trying to build up a record for the lender, because each will have different criteria around how long they need you to have been a contractor. It’s bespoke to your individual circumstances, but generally speaking, you’re going to need your current contract and either your previous one or your next one.

There are also the usual things like proof of ID and proof of deposit if it’s a purchase, but it’s the contracts that are the important bit here.

Are there any specific requirements or restrictions for contractors considering a joint mortgage?

It’s all about timing, for contractors. It depends how long you’ve been doing this. If you’ve been employed up until last month, for example, and you’ve literally just started contracting, we might struggle a bit. One or two specialist lenders might consider it if you’re doing the same thing as when you were employed.

Brand new contracts might cause us an issue. The right thing to do there is wait until you have six months’ history. Once you’ve got six months’ history and six months left on your new contract, that’s generally okay – especially if you are in a role where you’ve done that work before.

Most people do something as employees that turns into a contract. You don’t tend to wake up one morning as a bricklayer and decide to be a contractor in IT, although it’s not unheard of. There are many different forms of contractors, and the construction industry is really big for contracting. We could do a whole other podcast about that.

How do I improve my chances of getting a joint contractor mortgage?

Timing is key. Just make sure you get your contracts ready and make sure they’re signed by everyone. A blank unsigned copy is no good to us. We want one signed by the company and by you. Get your bank statements and ID ready and that’s as good as you can get.

Credit score is something to mention in terms of being approved. With credit, you either meet the criteria or you don’t. Lenders have different criteria we can look at. But in our first conversation with you, we will explore the details of who you are and what you do, and which criteria will fit.

Avoid missing any payments or making them late. Keep everything up to date, and check that you’re on the voters’ roll. That’s important for credit score and is relevant for everyone, not just contractors, in helping improve your chances.

Can applicants who are contractors include their spouse or partner in a mortgage application?

Absolutely. All the time. Generally speaking, it’s rare that I get a case where both applicants are contractors. Normally, one is and one isn’t. The other person may be self-employed in a different way, or employed, or a stay-at-home parent. It could be anything. Basically, you can have a joint mortgage in most situations.

Sometimes person A is the contractor and they have a limited company for their contracting.
Their spouse, person B might be a shareholder of that company, for tax benefits, That’s totally fine. We can use a percentage of their income from that, if we go down that route.

We’re going to use your contractor income – usually your day rate. In that case, who owns the company is not so important as long as you’re both on the mortgage. If you both have shares in your company, you both need to be applying for the mortgage.

With your contractor income, we could also look at you as self-employed. If you’ve been contracting for a few years with a limited company, you pay yourself a salary and dividends and your partner gets some salary and dividends as well, we can use all of that income.

When you’re a contractor like that, we’ve got many options. We can look at day rate, or salary and dividends, or we can look at salary and profit. You might want to borrow as much money as possible, in which case we will use your day rate.

But if it’s a remortgage, for example, where you have already got the mortgage and want to change to a new lender, it might be that the right lender doesn’t look at you as a contractor. Not all of them do. They’ll look at you as self-employed – and we could go down that route instead. So there’s lots of different options and factors to look at.

Are there any additional considerations for contractors when applying for a joint mortgage compared to employed individuals?

I wouldn’t say there are. The criteria for a contractor around the timing is the biggest thing.
If you’re new or haven’t been doing it that long, or a contract is ending and hasn’t been renewed yet, that’s a little tricky. But I don’t think we’ve got any additional factors to consider, necessarily.

What are the advantages and disadvantages of applying for a joint mortgage as a contractor?

The advantage for a joint mortgage is that you can use both incomes. Any disadvantages would depend on your situation, really.

If you’ve got a sole mortgage at the moment and you don’t want to add your partner on, but that would get you the mortgage you need, that might be a downside for you. Really, you either need a mortgage or you don’t – being a contractor is irrelevant.

But it might come back to using your income as a company director or as a contractor. On that front, it’s about affordability. Generally speaking, you’re going to be able to borrow more if we use your day rate. Lenders use that day rate multiplied by five, over 46 or so weeks of the year – to allow for time off.

That’s going to give you a lot more than if you use your salary and dividends. You probably keep that lower for tax purposes. So affordability is probably another big advantage with contractor income.

The disadvantage is that not every lender looks at your income that way. We might be paying a slightly higher rate to get that benefit.

How can contractors navigate the potential challenges or obstacles when applying for a joint mortgage?

Be prepared. I keep talking about the timing, because that’s the most important part of the lenders’ criteria. How long have you been contracting? How long have you got left on the contract? How long have you been on it? Have you done this before? All these factors go into whether it’s doable or not.

But if you’ve been employed in this field before, you’ve been doing it for six months and you’ve got six months left – or maybe you’ve been doing it a year and you’ve got a few months left, that’s all right. Timing is key.

The right way to navigate any obstacles is to speak to a broker early in the process so that together we know what we need and what we’re aiming for.

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