Guide to mortgages for contractors working through UK limited companies

Guide to mortgages for UK contractors working through limited companies

As a professional contractor operating outside IR35 through a limited company or Personal Services Company (PSC), securing a mortgage can be challenging through conventional routes. Whether you are a first-time buyer, remortgaging, moving home or buying to let, this guide from our specialist mortgage partner Freelancer Financials will help you navigate the process and avoid costly mistakes.

Understanding contractor mortgages and contract-based underwriting

Freelancer Financials specialise in securing mortgages for independent professionals using limited company or PSC payment structures for fixed-term contracts. Instead of relying on traditional accounts, these mortgages use your gross contract day rate to determine affordability, which is known as contract-based underwriting.

Freelancer Financials can assess your income, and consequently your borrowing power, based on your day rate alone - this is the key to unlocking better mortgage deals for contractors. This method can secure you a much larger home loan than the traditional criteria used by most high street lenders, who do not have the expertise to correctly assess your income, or could simply class you as self-employed.

Contact Freelancer Financials here for immediate mortgage advice

Avoid the pitfalls of High Street lenders

High street lenders often struggle to accurately assess contractor incomes. They may:

• Focus only on your tax accounts, salary and dividends drawn. Directors of limited companies almost always rely on accountants to run their finances in a tax efficient way – with a minimal salary supplemented as necessary by dividends. High Street lenders can misinterpret your full income as a result. Freelancer Financials will make sure that your lender accepts your contract day rate as your true income.
• Underestimate your borrowing potential by ignoring profits retained in your limited company. It is unusual for a limited company to pay out its entire profits as dividends every year, so it is vital that your lender understands the value of retained profits in your company. Freelancer Financials will ensure that your mortgage lender accepts that retained profits are part of your true income.
• Insist that your company has traded for a minimum period of time. Some lenders will only consider applications from PSC’s with 6, 12 or 18 months trading history, or only from those companies that have submitted their accounts for a full tax year. Freelancer Financials has developed close relationships with lenders over decades, so that applications can be made even on the first day of your first contract.
• Reject applications due to the perceived "high risk" of a contractor’s income structure. Some lenders simply will not accept the value of the turnover of a contractor’s limited company and will offer you a smaller mortgage, a higher interest rate or even reject your mortgage application altogether (which will impact your credit score). Freelancer Financials will only submit your mortgage application to “contractor-friendly” lenders offering market leading interest rates, to ensure that you get the best deal for your circumstances.

How much can you borrow?

Calculating mortgage affordability on your day rate alone is surprisingly simple:

1. Take your contract day rate
2. Annualise it (typically based on a 46-week year)
3. Multiply the result by 4-5 times, depending on the lender

For example, a contractor earning £325 per day, working 5 days a week for 46 weeks a year, would have an annualised income of £74,750. Using a multiplier of 5, they could potentially borrow up to £373,750.

Calculate how much you could borrow using our simple contractor mortgage calculator here.

Why use a specialist contractor mortgage broker?

Using the services of a specialist mortgage broker, rather than simply approaching a high street bank, building society or comparison website, is crucial for contractors seeking the best mortgage deal. Established in 2004, Freelancer Financials was a pioneer of contract-based underwriting and is now the leading broker in this market. Freelancer Financials has the expertise to offer contractors the following advantages:

• They understand how contractors use limited companies as payment vehicles
• They can explain contracting income and retained profit to lenders
• They know which lenders offer the most favourable terms for contractors and how to present your case in the most favourable light
• They have direct access to specialist underwriting teams at key contractor-friendly lenders
• They have 20 years of experience in securing mortgages for every kind of contractor
• They are truly independent brokers able to give entirely impartial advice
• They have full access to any mortgage product from any lender so they can find the best mortgage deal for your specific circumstances
• Their brokers are experts in arranging contractor mortgages with a deep understanding of the full range of contractor payment structures (limited company, umbrella company, CIS, inside or outside IR35 etc)

What factors might affect your application?

While your day rate is crucial, other factors can impact your mortgage application:

• Your credit score (and any history of impaired credit)
• Your available deposit or equity in your current property (to calculate the loan-to-value ratio)
• Your current contract details (e.g. length of contract)
• Industry experience and work history (to demonstrate your longevity as a contractor)

Documentation required to apply

Applying for a mortgage through Freelancer Financials requires minimal paperwork compared to traditional lenders. You'll typically need:

• A copy of your current contract and assignment schedule
• Proof of address (utility bills)
• ID (passport or driving license)
• Last three months of personal and business bank statements
• CV (for those lenders who wish to see your contracting history)

Conclusion

As a UK contractor working through a limited company or PSC, you have unique mortgage needs. By working with a specialist broker such as Freelancer Financials that can offer contract-based underwriting, you can secure a mortgage that truly reflects your earning potential. Don't let traditional lending criteria hold you back - talk to the experts in contractor mortgages to make your home ownership dreams a reality.

Get started by completing the Freelancer Financials enquiry form here.