What is a contractor mortgage?
A contractor mortgage isn’t a specific product — it’s a standard mortgage assessed using criteria that recognise contract-based income. The key difference is how the lender calculates what you earn.
Many contractors work through their own limited company or an umbrella company, drawing a low salary and taking the rest as dividends. If a lender only looks at this declared income, the borrowing figure can be disappointingly low. Lenders with contractor-specific criteria take a very different approach.
How does the day rate calculation work?
The most beneficial assessment method for contractors is the day rate calculation. Instead of looking at your accounts, the lender annualises your contract rate to arrive at an income figure.
Day rate calculation example
At 4.5x income, this contractor could borrow up to £540,000. Compare that to a salary-plus-dividends assessment on the same contractor’s limited company accounts, which might show £50,000–£60,000 of declared income and a maximum mortgage of £225,000–£270,000.
Not all lenders use the day rate method. Many will want to see your company accounts and SA302s like any other self-employed applicant. A broker ensures you apply to a lender that uses the most advantageous method for your situation.
Umbrella company vs limited company contractors
How you structure your contracting business affects which lenders are available and how they assess your income.
| Umbrella company | Limited company (PSC) |
|---|---|
| Paid via PAYE — you receive a payslip | You control salary, dividends, and expenses |
| Some lenders treat you as employed (simpler application) | More tax-efficient but declared income may look lower |
| Income is clear but may be lower after umbrella fees | Day rate lenders assess your contract, not your drawings |
| Fewer tax planning options | Need company accounts and SA302s for non-day-rate lenders |
| Easier for mortgage applications with mainstream lenders | More lender options if using a broker |
CIS contractor mortgages
If you work in construction under the Construction Industry Scheme (CIS), your income is paid with tax deducted at source by your main contractor. This creates a unique situation for mortgage applications because your gross and net income figures differ from standard self-employment.
Some lenders understand CIS income well and will use your gross contract income for affordability. Others may only consider your net (after CIS deductions) figure, which is significantly lower. A broker with CIS experience knows which lenders to approach.
Keep your CIS payment and deduction statements (CIS vouchers). Some lenders accept these as income evidence, potentially allowing you to apply without waiting for your SA302.
How does IR35 affect your mortgage application?
IR35 is the tax legislation that determines whether a contractor is genuinely self-employed or effectively an employee for tax purposes. Since April 2021, the end client (not the contractor) is responsible for determining IR35 status in medium and large businesses.
If your contract is inside IR35, you’re taxed as an employee through PAYE. Some lenders will treat inside-IR35 contractors as employed, which can simplify the application. If you’re outside IR35, you’re assessed as self-employed with the income methods described above.
The key for your mortgage application is consistency. If you’ve recently changed IR35 status, lenders may want to understand the impact on your income. A broker can explain this and direct you to understanding lenders.
Contract length and renewal requirements
Lenders that use day rate assessment typically want to see a current contract with a reasonable amount of time remaining — usually at least 3–6 months.
What lenders want to see
- A current contract with at least 3–6 months remaining
- History of contract renewals (proves continuous employment)
- Minimal gaps between contracts (under 4–6 weeks)
What to provide
- Copy of your current contract showing day rate and dates
- Previous contracts or evidence of renewals if available
- CV showing continuous contracting history
If your contract is about to end with no confirmed renewal, some lenders will still proceed if you have a strong history of back-to-back contracts in your field. Others may want to wait until a new contract is signed. Timing your application to coincide with a new or recently renewed contract gives the strongest position.
Get specialist contractor mortgage advice
At Clearview Mortgage Solutions, we work with contractors across all industries — IT, construction, engineering, finance, and more. We know which lenders use day rate assessments, which understand CIS income, and which are most flexible on contract terms.
Contact us for a free, no-obligation assessment. We’ll calculate your borrowing capacity using every available method and find the lender that gives you the best result.