Given the demands of current living more and more workers want a more flexible approach to how they work.
As a contractor you will be deemed as being self-employed and the vast majority of lenders will require at least two years’ accounts, basing affordability on net profit for a sole trader or remuneration and dividends for a director of a limited company – all of which can be restrictive.
In the past the majority of people contracting have been in IT but this has now opened up greatly and many people now work on a contract basis including accountants, solicitors and banking professionals.
What are the options?
There are lenders available who will lend to IT contractors and other contractors whose income is more than £500 per day or £75,000 per annum, some lenders have a specific list of contractors they will entertain, others are more flexible.
In terms of income, some of the smaller regional building societies may be more flexible still with no specific criteria in terms of type of role or income.
How is income calculated?
It varies by lender and each has a differing affordability model on what they deem to be acceptable but typically the lender will be happy to calculate borrowing on the daily rate detailed in the contract.
If the contract states a daily rate of £375 then this is multiplied by the five working days in a week and generally by 46 allowable weeks in the year assuming six weeks unpaid holiday is taken.
In this example the lender would be using an annual income of £86,250 which could result in borrowing of up to £431,250 dependent on personal circumstances.
As you can see this is a great deal easier than having to provide two or even three years accounts although it is still possible that the lender may need to see evidence that the applicant has been contracting two years.
It is equally possible that the lender may be happy with evidence of a minimum of 12 months or even six months dependent on the loan to value. This evidence will generally be your current and potentially previous contracts showing the daily or annual rate.
A final point to consider is that lenders will probably be happy with up to a month between contracts to allow for a holiday for example but should you decide to take an extended break for a few months then you will struggle to get any lender to approve a mortgage if you’re contracting.