IT Contractor Mortgage

Can you explain the difference between a regular mortgage and a mortgage for an IT contractor?

The actual mortgage that you’ll end up with is exactly the same, whoever you are and whatever you do. The money is the same and the lenders are broadly similar. It’s just how they assess your income that’s going to be different.

Generally, an employee will get pay slips, while if you’re self-employed there’s plenty of content on the website about that. We’re going to look at your last couple of years’ tax information and your income from self employment or your limited company.

For an IT contractor – or contractor of any description – certain lenders are going to look at the value of your contract rather than your limited company income or your sole trader income. They won’t see you as a self-employed person. They’re looking at the value that your contract has – at your day rate, week rate or hourly rate. That’s the key difference.

What eligibility criteria does an IT contractor need to meet in the UK?

We need a contract, for a start. That’s the big thing. If you’re completely employed and the employer is paying your tax, then you’re not a contractor. That might sound obvious, but just because you work in IT doesn’t mean you’re an IT contractor.

What we’re talking about here is being self-employed on a contract for a while, then you might go and work for someone else and you might do some other work on the side. That’s what it means to be a contractor.

We need the actual contract, which will be for a set amount of money over a certain period of time. It could be broken down into a day rate. That’s quite common for IT contractors – you get paid a certain amount per day and then they’re expecting you to work an agreed number of days per week. We’ll multiply that up to get an annual figure.

How does being an IT contractor affect the mortgage application process?

We’re probably going to approach a specific set of lenders, because some will just view you as self-employed – they don’t make it any different for a contractor. They’ll just view you as a sole trader or a limited company director. However, your setup doesn’t really matter.

We’re going to a lender that will specifically look at the value of a contract, and your track record. They want to see that you know what you’re doing. Hopefully, you’ve been doing this for a little while – 12 months is a bit of a magic number. If you’ve been contracting for a year there are lots of lenders we can go to.

If you’ve got at least three to six months left on a contract, that will also help. But you would struggle if you’ve been employed and you’ve just gone on to a six month contract. There are other scenarios that could cause challenges. Different lenders will look at contractors in a very specific way.

What documentation is required to apply for a mortgage as an IT contractor?

It’s all the usual stuff – personal bank statements, possibly business ones as well, ID, proof of deposit. We’re also going to want your contract to show what you’re earning and how long it’s for. We may want your previous contract as well – it depends on your individual circumstances.

I’ve had people that have had a contract renewal every three months, but they’ve been there a couple of years. Having a few renewal letters and a few contracts helps us go to the best lender possible.

If you’re a contractor, you’ll know what I mean by an umbrella company, which pays you outside IR35. If you are paid by an umbrella company, we’ll want the last few pay statements.

Are there any specific lenders in the UK that specialise in mortgages for IT contractors?
There’s a good handful of main high street lenders, while others don’t look at contractors any differently to other self-employed people.

We’re not short on choice, and we’ve also got some more specialist lenders, particularly if you’ve not got the contracting timescales that the big one lenders might want. I won’t name any lenders because they change their minds all the time. But yes, there’s plenty of choice.

What factors are considered when determining the mortgage amount for IT contractors?

All lenders are different in terms of how much they will lend. Some are far more generous than others. Even if you went with the same employed salary to 10 different lenders, you’d get 10 different answers on how much you can borrow.

When it comes to contracting, though, it’s a little bit more complicated because they’ll use different amounts of your contract. The most generous might take your day rate, hourly rate or weekly rate and take 46 or 48 weeks of it as an annual total. They’ll assume you’ll take a little bit of holiday and some breaks. That’s going to give you a good figure.

With some lenders, if that earnings figure is over £50,000 or £60,000 they might even lend you five or 5.5 times your income. We’re probably slightly off the high street for those figures.

There are also some less generous lenders that will only take 42, 44 or 46 weeks of your earnings. Other lenders will only take 80% of what you’re earning. So there are lots of different factors, and lenders work in very different ways when it comes to affordability.

Can you provide details on the interest rates and repayment options for IT contractors?

I’ll steer clear of specific interest rates, but you’re going to be looking at standard rates. We’re going to be working with standard lenders, with standard rates.

So whilst we might not be able to go to the lender with market leading rates at that moment if they don’t do contractor income, we’ll be there or thereabouts because we’re going to be on the high street. Generally speaking, they take it in turns to have the best deal. So we won’t have to pay through the nose with contractor income.

Repayment options are the same as for anyone else. We’ve got information on the site about interest only. If you’ve got enough equity, that might be an option, and if you earn enough money some lenders might let you have some or all of the mortgage on interest only.

Can I get a Buy to Let mortgage as an IT contractor?

Yes, absolutely. It’s probably slightly easier to get a Buy to Let mortgage as an IT contractor. Again there’s lots of content on the site about Buy to Let, but once you earn over a certain amount, typically £25,000 you will qualify for most mortgages. Some don’t even have a minimum income.

The way the rent covers the mortgage payment is much more important than your personal income. Being an IT contractor won’t limit your Buy to Let ability in any way.

Are there any specific challenges or advantages for IT contractors in obtaining a mortgage?

It can be a little bit tricky if you haven’t got a lot of history as a contractor, or if you’ve had a long break. If you’ve done some contracting, then gone employed and then gone contracting again, that’s also a tricky scenario. Generally, if you’re still in the same field of work, it’s something we can overcome.

There are hurdles around length of time and contracts, but the key advantage is your income. I’ve seen IT contractors who are earning a lot of money in my time as a mortgage advisor.

Someone who’s employed won’t tend to earn as much, because there is a risk to contracting. You might not find the next contract for a while, so you do tend to get paid a bit more.

So if we can go to a lender that will lend you 5.5 times your day rate over 48 weeks of the year, you’re going to be able to borrow a lot more than if you had taken that job on an employed basis. It can be very beneficial if we go to the right lender.

How can a broker help an IT contractor with a mortgage?

I’ve probably demonstrated that there’s a lot to consider when you’re an IT contractor, or a contractor of any sort. You can’t just pitch up to your bank because they might not support contractors at all. It’s not something you can get by comparing any meerkats or anything like that.

A mortgage broker will know who to go to, who to avoid and what we need. It’s good to talk to a broker if you have any sort of complex income, really, and contracting certainly fits in that area.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

The information contained within was correct at the time of publication but is subject to change. Podcast recorded in May 2024.