Contractor mortgages

Contract-based roles are becoming more commonplace in every type of industry. Whether you’re a teacher, IT contractor, engineer or even a manager. But as many lenders will consider these roles to be less secure than a permanent role, it can be more difficult for contractors to get mortgage approval. The best route to securing a mortgage is by using a lender who will consider your circumstances individually.

Getting a mortgage as a contractor

There are now more people in contract, freelance and self-employed roles than ever before. These types of jobs are becoming a new trend, as the younger generation in particular favour project-based work. This is because they offer more flexibility and variety than a fixed job.

But as contract work hasn’t always been the norm, many conventional mortgage lenders are still in the mind-set that if you have a contract-based job then your employment status is less secure than a permanent one. In addition, depending on your job role, your work hours and income might not be consistent from one month to the next. These factors lead many lenders to believe that you might struggle to afford mortgage repayments, despite whether or not your most recent payslips prove otherwise.

This means that many people in these types of roles might struggle to get mortgage approval with high-street or traditional mortgage lenders.

Mortgage approval for contractors

As a contractor, you might need to provide mortgage lenders with more information for them to consider. The best chance you have at getting a mortgage approval is if you choose a lender who will consider applications on a case-by-case basis.

Other ways that can improve your chances of getting mortgage approval include:

Saving for a larger deposit

A larger deposit will increase your chances at getting mortgage approval. This is because you will be borrowing less money for your mortgage, reducing your potential risk.

Your credit history

Your credit score plays a huge role in your mortgage options. Before applying you should check your credit score with a credit company such as Experian or Check My File. This will give you a good indication of what types of rates you are eligible for.

If you do have bad credit then as a specialist broker we can look into your individual circumstances and help source an appropriate mortgage lender.

Joint mortgages

Having a partner on the mortgage that is in a permanent role rather than also on a contract can help strengthen your mortgage application. This is because the responsibility of repaying the mortgage will be split between more than one person.

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Why Clever Mortgages?

At Clever Mortgages we can offer you the support and advice required to ensure you get the right mortgage for your first home.  We provide access to a comprehensive range of mortgages from across the market. We are also authorised and regulated by the Financial Conduct Authority (FCA) and adhere to the Treating Customers Fairly (TCF) guidelines, so you can be confident that we will treat you with integrity and only recommend products that meet your needs.

Mortgage types

A fixed rate mortgage is where your interest rate stays the same for a set time period (usually between 2-10 years). As a result your repayments are exactly the same each month, regardless of what happens to other mortgage rates. These types of mortgages are popular with first time buyers and people looking to budget each month, especially those who have suffered from a poor credit history.

The main downside to a fixed rate mortgage is that if mortgage rates go down you can be paying a higher amount than you would on a variable rate mortgage. However, this can also go in your favour and if interest rates increase you can be paying less than you would on a variable rate.

Every lender will have their own standard variable rate (SVR), which is considered their basic mortgage. This interest rate goes up and down, usually in line with the Bank of England’s interest rates but the lender is free to raise this at any time.

This means that your monthly payments can go up or down depending on what the interest rate is at a given time. Some months you could be paying more whilst other months you could be paying much less.

A discount mortgage is when a reduction is applied to the lenders Standard Variable Rate (SVR) for a certain length of time (typically 2-3 years). Discount mortgages are attractive as they can allow you to pay slightly less than the bank's standard rate. However as the SVR can still fluctuate they are not ideal for people who are looking to stick to a strict long term budget.

A tracker mortgage is basically a type of variable rate mortgage.  What makes them different from other variable rate mortgages is that they follow – track – movements of another rate, the most common rate that is tracked is the Bank of England Base Rate.

A capped mortgage is the same as a variable rate mortgage; however the interest rate can never rise above a set “cap”. These mortgages can work well for people who can budget for different mortgage repayments each month but want the reassurance that their payments will never go above a certain amount.

Offset mortgages are linked to a savings account as well as your current account. Your savings will be 'offset' against the value of your mortgage, and you'll only pay interest on your mortgage balance minus your savings balance. These types of mortgages work well for higher earners or people who have a good amount in savings that they want to use towards paying their mortgage.

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