Day Rate Contractor Mortgages‍

As a contractor, securing mortgages for contractors can often feel like an uphill battle. Traditional lenders often have rigid criteria that don’t align with the unique circumstances of contractors. However, the good news is that there are specialist lenders who understand the complexities of contractor income and offer contractor friendly mortgages. In this comprehensive guide, we will delve into the world of day rate contractor mortgages and equip you with the information you need to navigate the tailored mortgage market with confidence.

Understanding Day Rate Contractor Mortgages

Contractors are a vital part of the workforce, but their non-traditional employment status can pose challenges when it comes to obtaining a mortgage for contractors. It is important to remember that there are mortgage brokers such as MortgageTek who specialize in contractor’s mortgages. These contractor lending institutions recognize that your income may be irregular and that you may not have the same documentation as a traditional employee. They consider factors such as your day rate, contract length, and industry experience to assess your affordability.

Types of Contractor Mortgages

There are various mortgage types for contractors available, each catering to different contractor situations. Some common types include:

Fixed Term Contractor Mortgages

These mortgages are designed for contractors on fixed-term contracts. Lenders typically require a certain amount of time remaining on the contract and consider factors such as rate of pay and length of the project.

Professional Contractor Mortgages

This type of mortgage is tailored for contractors, including general contractors, independent contractors, and subcontractors. Lenders assess the daily rate and multiples of that to determine affordability.

Limited Company Director Mortgages

Contractors who operate through their own limited companies can take advantage of this specialist mortgage area. Lenders consider income drawn as salary and dividends or include the profit of the business in certain structures.

Agency Worker Mortgages

Lenders have varying criteria for agency workers, but mortgages can be successfully applied for in this category. Factors such as length of time in roles, consistency of pay, and continuity are taken into account.

The Mortgage Application Process for Contractors

While the mortgage application process for contractors may differ slightly from that of traditional employees, it is essential to approach it with the right guidance and support. Here is an overview of the typical steps involved:

1. Understand Your Position: Start by assessing your financial situation and understanding the mortgage options available to you as a contractor.
2. Find the Right Mortgage: Work with a specialist contractor mortgage broker, such as MortageTek, who can connect you with lenders that offer day rate contractor mortgages. They will help you navigate the market and find the best mortgage product for your specific circumstances.
3. Package Your Documents: Gather the necessary documentation to support your mortgage application. This may include your current contract, updated CV, bank statements, proof of identity, and any other relevant financial documents.
4. Submit Your Application: Once your application is complete, MortgageTek will submit it to the lender on your behalf. We will leverage our expertise and relationships with lenders to present your application in the most favourable light.
5. Await Approval: The lender will review your application, assess your affordability based on your day rate, and make a decision. MorgageTek will keep you updated throughout the process and provide guidance if any additional information is required.

How Much Can You Borrow on Your Day Rate?

One of the most common questions contractors have is about their mortgage borrowing capacity based on their day rate. While the exact amount will depend on various factors, including the lender’s criteria and your individual circumstances, there is a formula that can provide an estimate.

To calculate your potential borrowing, you can use the following formula:

Day Rate x Number of Days Worked per Week x 46 Weeks x Affordability Multiplier

The affordability multiplier for a contract rate mortgage is typically around 4.5, but it can vary depending on the lender. It is important to note that lenders may have different criteria and may consider additional factors when assessing your mortgage rates for contractors. Working with a specialist contractor mortgage broker, such as MortageTek, can help you navigate these complexities and provide you with a more accurate estimate of your borrowing capacity.

Example of Borrowing Potential Extension

Expanding on the formula, let’s consider a contractor who earns £500 per day and works 5 days a week. According to contract-based underwriting standards, this individual could potentially borrow up to £516,350 to purchase a home. That’s right, that much. Here’s the breakdown of our calculation.

To calculate the weekly wage, multiply the day rate of £500 by 5 (the number of days worked per week). Therefore, 5 × £500 = £2,500.

To calculate the ‘gross salary’, multiply £2,500 by 46, which represents the number of weeks worked per year. This results in £115,000.

Afterwards, we can calculate £115,000 multiplied by the affordability multiplier of 4.49, resulting in a total of £516,350.

Documents Required for a Day Rate Contractor Mortgage Application

When applying for a day rate contractor mortgage, you will need to provide certain mortgage application documents to support your application. While the exact requirements may vary depending on the lender and your individual circumstances, here are some common documents you may need . Limited company contractors appreciate the independence their status provides but face challenges in securing mortgages due to mainstream lenders not considering retained profits. Traditional lenders often assess mortgage affordability using criteria suitable for sole traders, including SA302s and extensive financial documentation, which may not align with contractors’ financial structures. 

1. Proof of Employment:
   1. 1. Provide the day rate, the key figure in contract-based underwriting.
      2. Submit a copy of the current contract and assignment schedule, including any extensions.
   2. Present an up-to-date CV demonstrating relevant work history.
2. Evidence of Income:
   1. 1. Annualize the day rate over 46 or 48 weeks, depending on the lender.
   2. Bank statements (personal and business, if applicable) for three to six months.
3. Day 1 Contractors:
   1. 1. Contractors with perfect credit and a solid work history may secure a mortgage from the first day of contracting.
   2. Requirements include an up-to-date CV, personal bank statements, and perfect credit.
4. Proof of Identity and Address:
   1. 1. Valid Passport or National ID for identity verification.
      2. Current, valid Driving Licence with a photo.
   2. Recent utility bills or council tax statements to confirm the residential address.
5. Proof of Residency:
   1. Non-UK residents need to provide a visa or residency permit to qualify for a UK mortgage.
6. Contractors are advised to present these documents to underwriting teams, often at lenders’ head offices, for a higher chance of mortgage success.

It is important to work with mortgage brokers who specialize in contractor mortgages, as they can guide you through the document collection process and ensure that you have all the necessary paperwork for a successful application.

Finding the Right Mortgage Broker for Day Rate Contractor Mortgages

As a professional contractor mortgage specialist, MortageTek has established relationships with lenders who offer tailored mortgage products for contractors. They have in-depth knowledge of the contractor mortgage market and can guide you through the application process, ensuring that your application is presented to lenders in the most favourable light.

Working with MortageTek provides you with the reassurance and expertise needed to navigate the complex world of contractor mortgages. Their team of dedicated mortgage advisers will support you from start to finish, providing personalized advice and finding the best contractor mortgages for your specific circumstances.