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If you’re an IT contractor looking to secure a mortgage in the UK, you’ve come to the right place. In this guide, we will explore the ins and outs of IT contractor mortgages, answer common questions and to try to make the process easier for you.
Let’s jump straight into it!
When we use the term ‘IT contractor mortgage’ we are not talking about a specific type of mortgage, but rather a set of criteria that apply to contractors within the IT field, which can result in varying levels of maximum borrowing with different lenders.
For IT contractors charging a daily rate, some lenders may allow you to use your gross daily rate when calculating how much they’ll lend to you, rather than using your tax returns or company accounts.
In some circumstances, depending on the level of expenses you have, this can have a significant impact on how much you can borrow.
Usually, you’ll find that lenders will account for gaps between contracts when working out the annualised income that they’re happy to use, even if there has not been any gaps. An example of this may be taking your daily rate, multiplied by 5 (or the number of days worked per week), multiplied by 48 (to allow for 4 weeks’ off).
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
To qualify for an IT contractor mortgage, lenders typically want to see a track record as a contractor. This is typically 2 years, however, some lenders may consider less time trading.
If you have only recently started contracting, it may even be possible to obtain a mortgage with less than 1 year’s contracting history.
Speaking of contracts, lenders will usually want to know more information surrounding your current arrangements, such as the amount of time remaining on your current contract.
For example, if you only have 1 month left to run on your current contract, certain lenders may want to have some assurance that this contract will be extended, or that you have another contract lined up.
Along with the time remaining on your current contract, lenders will usually look at whether there have been any gaps between contracts.
Where this is the case, it can have an impact on your eligibility with the lender, depending on how many gaps there have been, and/or the length of any gaps.
It’s also common to see lenders having a minimum income requirement for IT contractors, if you’re looking to use your daily rate for affordability purposes. This could be a minimum daily rate or minimum overall annual income.
Again, this is not the case with all lenders, as criteria varies from lender to lender.
If you have a limited company and employer other contractors, some lenders who may have otherwise allowed your daily rate to be used for their affordability calculations, may require you to be treated as a limited company director rather than an IT contractor for affordability purposes.
In other words, they’d look to use your salary and dividends or salary and company net profits, depending on the lender.
You’ll want to gather your contracts, along with your tax returns and/or company accounts, depending on your employment structure.
Other general documents required can be found here.
Not all lenders will assess lending based on daily rate for IT contractors. Working with a mortgage adviser who understands this type of income can help in determining which lenders are most suitable for your circumstances.
There’s no ‘one size fits all’ lender or product.
This is a tough one, as the maximum borrowing with one lender to another may be very different.
Not only does this come down to daily rate calculations vs. using your tax returns and/or company accounts, but also other various factors, such as the number of weeks that the lender will account for time off, along with differences in maximum lending limits in general.
Once you reach a certain level of lending, other criteria may become a factor, such as increased minimum deposit requirements, which may then cause limitations depending on your deposit size.
As mentioned, many lenders will ideally want to see a certain amount of time in a contracting role, which may be 12 to 24 months. However, there are some lenders who can consider a shorter period.
It can help if you have previous experience in the same field even if this was not a contracting role.
Generally speaking, a lower number of lenders are likely to be available if you have been trading for less than 12 months as a daily rate IT contractor. It can help if you have previous employment history in the same field.
Navigating IT contractor mortgages can be challenging, but I hope this guide has helped you understand some of the key areas to look out for.
Remember, everyone’s situation is different. There’s no ‘one size fits all’ approach to mortgages in general, let alone for those with more complex income.
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