What is a contractor mortgage?
A contractor mortgage isn’t a product of its own. It is a standard mortgage assessed under criteria that account for contract-based income. What changes is how the lender works out what you earn.
Plenty of contractors work through their own limited company or an umbrella company, taking a low salary and drawing the rest as dividends. A lender that only reads that declared income can come back with a low borrowing figure. Lenders with contractor-specific criteria go about it differently.
How does the day rate calculation work?
The day rate calculation is usually the friendliest method for contractors. Instead of reading your accounts, the lender annualises your contract rate to reach an income figure.
Day rate calculation example
At 4.5x income, that contractor could borrow up to £540,000. Run the same person through a salary-plus-dividends assessment of their limited company accounts and you might see £50,000–£60,000 of declared income and a mortgage capped at £225,000–£270,000. The borrowing calculator gives you a quick baseline before you talk to a broker.
Not every lender uses the day rate method. Many still want your company accounts and SA302s like any other self-employed applicant. A broker makes sure you apply to one that uses the method that works best for you.
Umbrella company vs limited company contractors
The way you structure your contracting affects which lenders you can use and how they read your income.
| Umbrella company | Limited company (PSC) |
|---|---|
| Paid via PAYE, so 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 main contractor deducts tax at source before paying you. That puts your mortgage application in an unusual spot, because your gross and net income figures don’t line up the way they do for other self-employed people.
Some lenders know CIS income well and will use your gross contract income for affordability. Others count only the net figure, after CIS deductions, which comes out a lot lower. A broker who has handled CIS cases knows which lenders to go to.
Hold on to your CIS payment and deduction statements (the CIS vouchers). Some lenders take these as income evidence, which can let you apply without waiting for your SA302.
How does IR35 affect your mortgage application?
IR35 is the tax rule that decides whether a contractor is genuinely self-employed or, for tax, really an employee. Since April 2021, in medium and large businesses it’s the end client, not the contractor, who sets your IR35 status.
Inside IR35, you’re taxed as an employee through PAYE, and some lenders will treat you as employed, which can make the application simpler. Outside IR35, you’re assessed as self-employed using the income methods above.
What lenders want to see is consistency. If your IR35 status has changed recently, they’ll want to know how it’s affected your income. A broker can talk that through and point you to lenders who take it in their stride.
Contract length and renewal requirements
Lenders that assess on your day rate usually want a current contract with a fair bit of time left to run, normally 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 nearly up with nothing confirmed to follow, some lenders will still go ahead where you have a solid run of back-to-back contracts in your field. Others prefer to wait for a signed new one. Lining your application up with a fresh or recently renewed contract puts you in the strongest position.
Get specialist contractor mortgage advice
At Clearview Mortgage Solutions, we work with contractors in IT, construction, engineering, finance and beyond. We know which lenders assess on day rate, which handle CIS income, and which are most relaxed about contract terms.
Contact us for a free, no-obligation assessment. We’ll work out your borrowing across every method available and find the lender that gives you the best result.