What Is a Contractor Mortgage?

A contractor mortgage is a specialised mortgage product designed for individuals working on a contract basis rather than being full-time employees. Unlike traditional mortgages, which rely on fixed salaries and payslips, contractor mortgages consider contract income, daily or hourly rates, and financial history to assess affordability. These mortgages provide flexible lending criteria to accommodate the unique working arrangements of contractors.

Who Is Eligible for a Contractor Mortgage?

Contractor mortgages are available to individuals who work on a contract basis across various industries, including IT, construction, finance, and healthcare. Eligibility typically depends on:

  • Length of contracting history – most lenders prefer contractors with at least six to twelve months of consistent work history. Having multiple contracts over a longer period may also improve eligibility
  • Consistency of contract renewals – regular contract extensions or rolling contracts demonstrate income stability, making lenders more likely to approve a mortgage
  • Proof of regular income through contracts or invoices – lenders require evidence of past earnings, such as invoices, tax returns, or bank statements, to assess affordability
  • A strong credit history – while a good credit score increases mortgage options, specialist lenders can help those with a history of missed payments or defaults
  • Having a suitable deposit – contractors with a higher deposit (e.g., 10% or more) are often offered more favourable mortgage rates. Lenders assess each applicant based on their overall financial profile rather than using a traditional salaried approach

How Much Can Contractors Borrow?

The amount contractors can borrow varies depending on income, contract terms, and lender policies. Typically, lenders calculate borrowing potential using the following formula:

  • Daily rate x number of working days per week x 46 to 48 weeks per year – this formula estimates annual earnings based on contracted rates
  • Affordability factor – lenders usually multiply the estimated annual earnings by 4-5 times to determine the maximum borrowing amount

However, each lender has unique assessment criteria, and additional factors such as credit history and existing financial commitments can affect borrowing potential. 

How to Calculate Income for a Contractor Mortgage

Lenders may use different methods to assess a contractor’s income. The most common methods include:

  • Daily rate calculation - this is the most common approach, where the daily rate is multiplied by the number of weeks worked annually (usually 46-48 weeks) to determine an annual salary equivalent
  • Self-assessment tax returns - contractors operating as sole traders or through a limited company may need to provide self-assessment tax returns from the past two to three years to prove income consistency
  • Limited company director salary & dividends - if operating through a limited company, lenders may consider both salary and dividends drawn, rather than total company earnings, which could limit borrowing potential

Because each lender has different assessment criteria, consulting a contractor mortgage specialist can help secure the best deal.

Contractor Mortgage Calculator

Use our Contractor Mortgage Calculator to estimate how much you can borrow based on your contract rate.

What Are the Lending Criteria for Contractors?

 Lenders set specific criteria for contractor mortgages, including:

  • Minimum contract duration – most lenders prefer a minimum of six months of contracting experience, though some may accept shorter durations with strong supporting evidence
  • Proof of previous contracts or continuous work history – a strong work history with minimal gaps between contracts demonstrates income reliability
  • Income stability, demonstrated through contract renewals – contractors with rolling contracts or evidence of consistent work in their industry are more likely to be approved
  • Minimum deposit requirements – A deposit of at least 5-10% is standard, but a higher deposit can unlock better interest rates
  • Good credit history – a strong credit score improves mortgage options, though specialist lenders offer solutions for those with adverse credit histories

How Much Deposit Do I Need as a Contractor?

The deposit requirement for contractor mortgages typically ranges from 5% to 20%. However, the exact deposit amount depends on factors such as:

  • Credit history – applicants with poor credit may be asked for a higher deposit
  • Income stability – a larger deposit can reassure lenders if contracting history is limited
  • Lender requirements – some lenders have stricter policies, requiring deposits of 10% or more for contractors

A larger deposit often results in better mortgage rates and increased lender options.

Reasons Lenders May Decline You for a Contractor Mortgage

Lenders may reject contractor mortgage applications for various reasons, including:

  • Insufficient contracting history – less than six months of experience can make lenders hesitant to approve a mortgage
  • Gaps between contracts – frequent or long breaks between contracts may signal income instability
  • Poor credit history – late payments, CCJs, or defaults may result in rejection from mainstream lenders
  • Low deposit – not meeting the minimum deposit requirement can limit mortgage options
  • Overly complex income structure – difficulty in verifying earnings, especially for limited company directors, can make approval challenging

Getting a Mortgage with Bad Credit as a Contractor

While bad credit can make securing a contractor mortgage more challenging, specialist lenders exist to help contractors with:

  • Late payments, CCJs, or defaults – lenders will assess the severity and recency of these issues
  • Previous bankruptcies or IVAs – some lenders offer mortgage solutions even if bankruptcy has occurred, typically after a set period
  • Debt management plans – applicants with active or previous plans may need a higher deposit or specialist lender support

Taking steps to improve credit before applying and working with a contractor mortgage specialist increases the chances of approval.

How Can John Charcol Help with My Contractor Mortgage?

At John Charcol, we specialise in helping contractors secure mortgages tailored to their financial situation. Our expert advisors:

  • Have access to specialist contractor-friendly lenders – offering exclusive mortgage deals not available on the high street
  • Assist with structuring applications for maximum approval potential – ensuring income is presented in a way that aligns with lender criteria
  • Offer bespoke mortgage advice and personalised guidance – tailoring solutions to each contractor’s unique circumstances

What Are the Benefits of Using a Contractor Mortgage Specialist?

Working with a contractor mortgage specialist provides several advantages:

  • Access to exclusive mortgage deals – some lenders only work with specialist brokers
  • Expertise in contractor income assessment – helping to present income in a way that meets lender requirements
  • Assistance with complex applications – navigating through complex income structures and lender criteria
  • Higher approval chances with specialist lenders – increasing the likelihood of mortgage approval compared to mainstream lenders

John Charcol Expert Tip - March 2025

"Navigating the mortgage market as a contractor can be challenging, but with the right expertise, securing a mortgage tailored to your needs is entirely possible. By working with a specialist broker like John Charcol, we understands lender requirements, you can maximise your borrowing potential and secure competitive rates. Whether you're a first-time buyer or looking to remortgage, expert advice can make all the difference in achieving your homeownership goals."

- Mortgage Technical Manager Nick Mendes, CeMAP qualified

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