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Do banks give mortgages to contractors?
A person working on a fixed term contract will have an end date when the position will either be terminated or extended.
This is different from a standard employee working permanently, where they may be able to stay at their job for as long as they wish. As a result, not all lenders are comfortable offering mortgages to people on fixed term contracts.
If a worker is on a fixed term contract with a daily rate, some lenders will work off income throughout the whole year by looking at their tax calculations or company accounts if they are paid through a limited company.
There are, however, lenders that can underwrite the applicant’s income based on the day rate of the contract, using their own individual calculation.
For example, a standard calculation is the day rate x 5 days x 48 weeks. If an applicant were earning £300 per day, this calculation would give them an income of £72,000.
Lenders calculate income differently, so make sure you talk to an experienced mortgage adviser with a background in arranging buy to let mortgages for contractors so they can tell you your options.
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Will all lenders offer a contractor buy to let mortgage?
Not all lenders will offer a contractor buy to let mortgage.
Some lenders require a permanent employment for peace of mind that the job is not expected to expire within a short period.
Some lenders that offer buy to let mortgages for contractors treat the application as if it was a self-employed case and require the documents to reflect this.
For instance, for a day rate contractor that is paid via a limited company, they may request two years of company accounts to verify the applicant’s income.
Some self-employed lenders only require one year of accounts to verify a self-employed position.
Suppose a lender is happy to work from the day rate of the contract. In that case, they will look at the contract itself to ensure that it meets the criteria in terms of minimum income, length from the start, minimum length of contract remaining and that the applicant has been contracting the number of years required to qualify for the mortgage.
They are self-employed lenders that require no minimum income, which means they could be flexible regarding the contract.
Due to the amount of buy to let lenders in the market and the different rules, it is recommended that you find an experienced mortgage adviser who can tell you your options.
How much contracting experience do you need for a buy to let contractor mortgage?
The amount of contracting experience you need to qualify for a buy to let mortgage will depend upon the individual lender.
For a day rate contract lender, many will need you to have one year of contracting experience if the income is required for their affordability assessment. Still, there are lenders willing to use the rental income of the property alone to underwrite the application and agree on the mortgage.
The amount of rent that a property will generate is a significant factor when underwriting a buy to let mortgage.
Along with the property’s value, this rental figure determines the maximum loan available for a buy to let mortgage. A stress test will differ based on which lender you approach.
For the lenders that do not need a certain income to qualify, they would need to be comfortable that the applicant’s financial situation is healthy and that the applicant will be able to pay the mortgage.
It would help if you talked to your mortgage adviser to determine which lenders would be available to you based on your contracting history and overall situation.
Can you get a contractor buy to let mortgage if the property is in a limited company?
Some lenders can offer a limited company buy to let mortgage for applicants who are contracting.
The lenders that offer limited company buy to let mortgages will underwrite a contractor’s income using their individual method.
This may mean using the contractor’s day rate or looking at the income over a more extended period, for example, two years.
Holding a buy-to-let property within a limited company takes it outside of your personal ownership, which can affect tax rules.
In addition to different tax treatments, limited company buy to let mortgages can incur further costs due to possible higher rates, charges and the requirement for an accountant to draft accounts for the business each year.
It would be best if you talked to an accountant to find out how the tax treatment of a limited company would affect you.
It would help if you also talked to a mortgage adviser who can tell you the difference in fees and rates for both personal ownership and limited company ownership.
Can you get a contractor buy to let mortgage for an HMO?
A contractor can get a buy to let mortgage on an HMO. An HMO is a house of multiple occupations.
This means that the rooms are rented out individually to a group of people that are not related to one another.
When assessing income for an HMO application, different lenders will have their own requirements regarding what an applicant needs to earn.
Some HMO lenders will work from the day rate of the contractor and will treat the applicant as self-employed.
Depending on the lender, they may have a minimum amount of time as a contractor required, such as two years.
Some HMO lenders do not have a minimum income requirement. Therefore, if they believe that the applicant is in a healthy financial position and meets the criteria in terms of HMO experience, they could be considered for a mortgage.
HMO properties can generate more rent than an average buy to let due to rented rooms individually.
In addition, costs are generally higher, with more work needed to manage the properties.
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Could a first-time buyer get a contractor buy to let mortgage?
It can be possible to get a buy to let mortgage as a contractor, even if you are a first-time buyer.
Not all lenders offer buy to let mortgages for first time buyers as they like to see that they have bought their own residence first.
However, some are willing to lend a buy to let mortgage to a first-time buyer as long as they meet the rest of the criteria. Such criteria can include a minimum income threshold.
The level of this threshold will depend upon the lender. However, a typical amount is £25,000.
Some buy to let lenders require a first-time buyer to have a high enough personal income to qualify for the level of mortgage borrowing on a residential basis before offering it on a buy to let basis.
This alleviates any concerns the lender may have about the applicant living in the buy to let property.
Not all buy to let lenders require this, so if you are a first-time buyer contracting and wishing to buy an investment property, you should look for an experienced mortgage adviser who can tell you your options.
Do you need a specialist mortgage broker for a contractor buy to let mortgage?
You may not necessarily need a specialist mortgage adviser to qualify for a buy to let contractor mortgage. Still, your mortgage adviser’s experience will play an essential part in the process.
Not all mortgage advisers will be up to date with lenders’ criteria around contractors, so be sure to ask them whether they have experience in arranging transactions similar to yours.
Most mortgage advisers will give you a free consultation so you know your options.
It is possible to get buy to let mortgages if you work as a contractor.
Lenders have their criteria around how they treat a contractor’s income.
Some are willing to use the contractor’s day rate to calculate an income, whereas some will underwrite the application on a self-employed basis.
As a result, if you are a contractor looking for a buy to let mortgage and wish to know which lenders are suitable for you, you should speak to a qualified, experienced mortgage broker who can tell you your options.
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