Mortgages for IT contractors

In this short guide, our chief mortgage adviser Errol Hall Cert CII (MP & SMP) will talk about mortgages for IT contractors, some of the challenges you might face, and how to make the application process smoother.

If you’re an IT contractor buying a new home, getting a mortgage might seem a little tricky. 

Compared to people with regular jobs, IT contractors may work on different projects for various clients, which means your income can be different every month.

You might also be new to contracting, have a short or zero-hour contract, work under an umbrella company, or inside/outside IR35 rules. These things can all pose a problem with some major banks or mortgage lenders.

This doesn’t mean getting a mortgage is impossible, it just means there are a few more steps to take and things to consider. 

The Growing Acceptance of IT Contractors by Lenders

More people nowadays choose to work in ways that aren’t the usual 9-to-5 jobs. For instance, some freelancing or contracting roles are becoming quite popular. This change means there are more IT contractors out there than before.

Banks and mortgage lenders have noticed this shift, and some are now offering loans that fit better with how IT contractors earn money. 

Unlike the regular mortgage you might get with a standard fixed salaried job, these unique mortgages are made with contractors in mind, understanding that your income might go up and down. 

This is indeed good news for IT contractors because it means there are more options out there for you. Lenders are getting used to the idea that not everyone has a steady income but can still be good at paying back a loan.

How Lenders Assess you

Affordability:

Lenders must carry out an affordability assessment before they can offer you a residential mortgage. They will consider your annual earnings to determine the amount they are willing to lend.

Any regular outgoings or monthly commitments you have might also influence the amount you can borrow. This includes household bills and financial dependents living with you, as well as any outstanding loans, and credit card balances etc.

Contract Length/Work History:

Longer IT contracts look better because they suggest stable future income. A solid history of contracts shows lenders that you can always find work. Many lenders will require that you have a minimum 12 to 24 months track record doing contracting or previous salaried work within the same field. 

In most cases theses lenders would also like to see a few months left on your current contract and no long breaks between contracts. Generally, a 6–8-week break will be acceptable.

Day Rate:

Your daily earnings can help some lenders figure out how much you can afford to borrow. No two lenders are the same and each will use their own calculation methods based on their lending criteria. This means maximum borrowing amounts can differ wildly between lenders. Our mortgage advisers will know which lenders to choose from and will help you to find the right option.