Contracting offers fantastic benefits — flexibility, control over your time, and often a significantly higher rate of pay than permanent employment. Many high-value contractors, particularly those working in fields like IT, engineering, consulting, and finance, operate through limited companies and enjoy lucrative day rates that can easily surpass the equivalent of a six-figure salary.
However, when it comes to securing a mortgage, contractors often find the process more complicated than their permanently employed peers. Lenders don’t always understand the nuances of contracting income, and criteria can vary dramatically between banks. The difference between approaching a lender who recognises your day rate and one who insists on using company profits can mean tens of thousands of pounds in borrowing capacity.
This article explores how lenders view contractors, the key challenges involved, and what factors influence how much you can borrow.
How Do Lenders Treat Contractors?
Not all lenders assess contractors in the same way. The treatment of your income depends on your contract structure, whether you fall inside or outside IR35, and whether you pay tax at source.
Day rate calculation
Some lenders recognise the simplicity of a day rate. For example, if you’re on £500 a day, a lender might calculate your annualised income as:
£500 × 5 days × 48 weeks = £120,000
This can be hugely advantageous, especially compared to lenders who only consider salary and dividends taken from your limited company. In practice, many contractors draw minimal salary and dividends for tax efficiency, meaning their declared profits can appear much lower than their true earning potential.
Self-employed or company accounts
Other lenders take a more traditional approach, treating contractors as self-employed. In these cases, they will often look at:
- Net profits of your limited company.
- Salary plus dividends declared on tax returns.
The problem? Contractors with high turnover but lower declared profits may find their borrowing capacity reduced to a fraction of what they could achieve with a day-rate-friendly lender. In some cases, the right lender can offer five or six times more borrowing power than the wrong one.
Mortgages and IR35
The rise of IR35 has created more complexity in the world of contractor mortgages. If you are inside IR35, you are typically treated more like an employee and pay tax at source. Some lenders are comfortable with this and will still use a day rate to assess income, while others may revert to the more cautious self-employed model.
Outside IR35 contractors often have more flexibility in how their income is assessed, but again, treatment varies. Lenders will want to see clear evidence of contract history, renewals, and ongoing demand for your services.
How Much Can Contractors Borrow?
Like any applicant, contractors are usually capped at 4.5–5 times income, though in certain cases — especially for high earners — 5.5 times income is possible.
The crucial difference is how “income” is defined. Using the day rate method, a contractor earning £500 a day could be assessed at £120,000, equating to £540,000–£660,000 borrowing capacity. If assessed solely on company profits, however, the same applicant might only be able to borrow a fraction of that.
This disparity shows why it’s so important to approach lenders who understand contracting.
Contract Lengths and Employment History
Contracting work is often short-term by nature, but this can make lenders nervous. Key factors include:
- How long you’ve been contracting: Some lenders have no minimum, others want 12–24 months of contracting history, often with limited gaps.
- How long left on your current contract: Some banks don’t set a minimum, while others want at least 3–6 months remaining. Written confirmation of extensions and a history of renewals can strengthen your case.
- Gaps in employment: Small breaks are common in contracting, but lengthy gaps may raise questions about stability.
In practice, a strong track record of completed and renewed contracts reassures lenders that you’re consistently in demand.
Multiple Contracts
Some contractors juggle multiple contracts at once. Certain lenders are open to assessing income from more than one role, provided both have been running for a reasonable period and are expected to continue. Others, however, will only accept one contract at a time.
This variation highlights how policies are not universal — it depends entirely on the lender’s criteria and experience with contractors.
Interest Rates for Contractor Mortgages
Contractors are not penalised with higher mortgage rates. If you fit a mainstream lender’s policy, you’ll usually have access to the same products as any employed applicant.
The challenge isn’t the rate — it’s qualifying for the borrowing in the first place. If you can demonstrate your income clearly, lenders will usually offer competitive, high-street rates. If not, you may need to look at more specialist providers, where rates are sometimes higher.
Deposits and Affordability
In theory, contractors can access mortgages with deposits as low as 5–10%, just like permanent employees. The real limitation is not the deposit but whether your income is accepted and how it’s calculated.
Of course, a larger deposit always improves your chances. With 20–25% down, more lenders become available, and you’ll often get a better choice of rates.
Improving Your Chances of Approval
There are several steps contractors can take to strengthen their mortgage application:
- Maintain a clear contract history – Renewals and consistent work look good to lenders.
- Show evidence of ongoing work – Written confirmation that your contract will be extended helps.
- Minimise gaps – Long periods out of work can make lenders cautious.
- Build a strong credit profile – A good credit score can offset other concerns.
- Save a bigger deposit – Reduces risk for lenders and broadens your options.
- Keep finances organised – Clear accounts, tax returns, and bank statements make assessment smoother.
- Use a Mortgage Broker – Using a mortgage broker like Strive Mortgages -who specialise in mortgages for contractors will help give you a wider pool of lenders.& improve your chance of success.
Which Lenders Are Best for Contractors?
There isn’t a single “best lender” for contractors. The right one depends on your contract type, length of experience, and how you draw income.
Some high street names known to be contractor-friendly in certain cases include Halifax, NatWest, Nationwide, and Bank of Ireland. However, policies change frequently, and what works for one contractor may not work for another.
The key is understanding which banks are willing to assess your income on a day rate, which insist on accounts, and which are open to more complex scenarios like multiple contracts or overseas clients.
If you are work for an umbrella company, the best lenders may differ from those not. Strive Mortgages are experts in mortgage for umbrella contract workers.
Summary
Contracting can be incredibly rewarding, offering both financial opportunity and lifestyle flexibility. Yet the very structure that makes contracting so attractive can create hurdles when applying for a mortgage.
The main challenges lie in how lenders interpret income: whether they use your day rate, look at your company accounts, or focus on IR35 treatment. Add in considerations around contract length, employment gaps, and multiple roles, and it’s clear why contractors face more complexity than most.
The good news is that with the right lender, contractors can access the same rates, products, and borrowing levels as permanent employees. The difference between being assessed on a limited company’s profits versus a full day rate can be enormous — sometimes as much as six times the borrowing capacity.
For high-value contractors looking to buy or refinance, preparation is everything: maintain a track record of contracts, keep finances organised, and understand that not every bank treats contractors the same.