Understanding Contractor Mortgage Affordability
Understanding Contractor Mortgage Affordability
Blog Article
How Lenders Calculate Affordability for Contractors
Affordability is crucial when applying for a mortgage, but as a contractor, the process can be a bit different than for employees. Lenders assess your ability to repay based on your income, but understanding how they calculate affordability for contractors is key to securing the best deal.
1. Day Rate vs. Salary
Contractors don’t have a fixed salary, so lenders calculate your income based on your day rate or hourly rate. The standard formula is:
Day rate × 5 days × 46–48 weeks = Annual income
This calculation helps lenders estimate your earnings for the year, even though your income can fluctuate depending on contracts.
2. Contract History and Consistency
Lenders prefer to see stable income, so they’ll look at the length of your contracting history and any gaps between contracts. Having renewed contracts or a consistent work history helps demonstrate your financial stability, but lenders may also be more flexible with contractors who experience occasional downtime.
3. Limited Company Contractors
If you work through a limited company, lenders will consider both your salary and dividends as part of your income. They’ll also review your company accounts and tax returns to assess your business’s financial health.
4. Additional Considerations
Lenders will also assess:
Credit history – A strong credit score improves your affordability.
Existing debts – Your debt-to-income ratio matters when determining affordability.
Deposit size – A larger deposit increases your chances of approval.
5. Professional Mortgage Advice
Since contractors have unique financial situations, getting expert advice is crucial. A mortgage broker specialising in contractor mortgages can help ensure your income is presented accurately to lenders.
Start Your Mortgage Application Today
At Contractor Mortgage Solutions, we understand contractor affordability and are here to help you find the best mortgage deal. Contact us to get started.