Mortgages for IT Contractors

Mortgages for IT Contractors

Different lenders have different rules around how they assess your affordability. As a contractor, you do not fit into the standard tick boxes on a mortgage application and this can hugely affect how much you can borrow from one lender to another. It is therefore important to approach a lender who understands the IT Contractor market and assesses your income in a favourable way.

Whilst many mainstream lenders don’t look favourably on contractors, some do understand the earning potential of expert IT contractors. They understand that your earning potential is substantially higher than that of your employed counterparts and that there can be huge tax advantages to you going self-employed. With more and more self-employed contractors entering the market, there are now more lenders who don’t automatically view you as being higher risk, and we know exactly which lenders they are!

What is an IT Contractor Mortgage?

As an IT contractor, you don’t have your own mortgage product as such, but there are mortgages available that are more tailored to your complex income- typically derived from various contracts of specific projects or durations, often leading to occasional income fluctuations. With the marked increase of self-employed contractors on the market, there are now several viable mortgage options available in the market to cater for the specific requirements of IT professionals.

Proving your income is the key to mortgage success as a contractor. You need to be able to verify your income and show evidence of a steady income stream. Many lenders will request to see your current contract and assess how long you’ve been contacting and how long is left to run on your current contract They may also ask you to evidence your future work plans once your current contract has expired. In short, they may need to see evidence of your past and present work patterns alongside your predicted future earnings.

IT Contractor trading through an umbrella company?

Getting a mortgage when working under an umbrella company is made complex by the fact that eligibility criteria varies greatly from lender to lender. Some lenders will require you to have been a contractor for a minimum length of time such as three months, six months, twelve months, or even two years. Others will have specified terms around the maximum amount of time you are allowed between contracts or how long is left to run on your current contract. They typically also have a minimum day rate.

Some lenders will base your affordability based on payslip averages and treat you as an employed worker. This means that they may ignore income deriving from such as holiday pay, bonuses and commission, which could significantly restrict your affordability. However, others are happy to work off multiples of your day rate and have a much more flexible approach.

IT Contractor trading through a Limited Company

If you are an established IT Contractor and have certified yearly accounts, lenders may use these to work out how much you can borrow by calculating your average salary plus dividend income. This can be challenging when it comes to affordability, as accountants seek to minimise tax payable on income and offset your expenses.

Alternatively, other lenders will calculate your affordability using your day rate or take the gross value of your contract due to the fact that as ‘professional specialists’, they view you as having job security.

Here at The Mortgage Master’s we know the lenders who look more favourably towards IT Contractors and who are flexible in how they assess your income. This means we can identify the best mortgage lender for your circumstances and find you the most competitive rates.

Our team at the Mortgages Masters will help you to navigate the mortgage market and whether you are new to contracting with only 3 months experience behind you, or a seasoned, experienced contractor, we’ll approach the right lender for your situation.