Mortgages for IT Contractors

IT contractors and the self-employed may worry about mortgage availability. While some lenders, especially more traditional high-street banks and building societies can be less willing to lend to contractors, there is still opportunity. At Just Mortgage Brokers, we can help.

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Author: Carl Shave - CEO and co-founder
Last updated: 30 May 2024

What is an IT Contractor mortgage?

Specialist mortgage lenders have tailored specific products for contractors. If you’re looking for a mortgage that takes the nuances of your income into account as someone working on a freelance or contract basis in IT, it’s likely you’ll be applying for a deal within one of these product ranges, also known as an IT Contractor Mortgage.

The lender will understand how, what might appear at first to be an unpredictable income, is in fact a steady stream of work, often through retainer service agreements, set period contracts, or long-term relationships.

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IT Contractor Mortgage FAQs

Many IT contractors can earn a higher pay rate than those similarly experienced PAYE employees. The typical IT contractor also tends to manage their finances carefully; many maximise tax efficiency by operating as a limited company, while others may pay tax and National Insurance contributions through an umbrella company.

The good news is that it is becoming easier for contractors to get a mortgage. While different lenders have taken different approaches to contractor mortgage lending, products labelled as ‘contractor mortgages’ are available and more flexible underwriting has allowed lenders to evaluate the income of applicants who don’t have employer’s payslips to prove their income.

Lenders can use quite different criteria to verify your income and assess affordability, and this will also vary depending on whether you are self-employed as a sole trader or partner, operate a limited company, or work via an umbrella company.

Many lenders assess contractor income in the same way as for self-employed applicants, by asking for full business accounts prepared or certified by a chartered accountant. Lenders vary in how many years’ accounts they will ask to see but be prepared to submit accounts for up to the previous three tax years.

Some lenders may ask for SA302 year-end tax calculations (with corresponding tax year overviews), either in addition to or instead of full accounts. Depending on how you submit your tax return, these can be printed from the online Self-Assessment portal, via your accounting software, or requested directly from HM Revenue & Customs. Be aware that while many lenders accept SA302’s printed at home or by an accountant, others will ask for HMRC originals.

If you run your IT contracting business as a limited company, lenders will typically use only income and dividends drawn from the company in calculating your income for affordability purposes. However, some more specialist lenders may base their calculations on your share of net profits; this can potentially make a considerable difference in how much you will be able to borrow.

Some lenders calculate contractor income by taking the day rate from your current contract, multiplying it by five to give a weekly income, then multiplying by 48 weeks to give an annual income (considering holidays periods). They will then use this figure against their usual affordability calculation to work out how much you can borrow, typically four or five times the annual income figure.

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