Contractor Mortgage Daily Rate

Contractor Mortgage Daily Rate

Paige talks to us about contractor mortgages and how your daily rate can affect how much you can borrow.

What do we mean by daily rate contractor mortgage?

If you’re a contractor there can be different ways you get paid. Some people get paid a set rate per day – and that’s what we’re talking about here. This episode wouldn’t apply to anybody who has an hourly rate or is on a zero hour contract.

It’s specifically for individuals where they are paid a set salary for one day. We often see this in the tech world or fashion industry.

Are there different types of daily rates for contractors?

There can be different types of daily rate contractors, but the overall contract looks the same. You may be in a range of industries, you may only be working two days a week or up to seven days a week – whatever you’ve agreed on with your employer.

Overall, it’s an umbrella term for anybody who has a set daily rate. We will always look into the specific details if you’re looking to get a mortgage.

What documents do I need to provide to get a contractor mortgage on a daily rate?

We will definitely need to see a signed contract between you and the employer to confirm the day rate. We will often look at your past history, depending on how long you’ve been contracting, how long your current contract is and a few other variable factors.

What happens if I’ve only recently become a contractor?

It depends. Some lenders won’t love it but others won’t mind, depending on a few different things. One of those is the level of income you’re earning.

It’s quite common to see people in the tech industry earning high salaries on a day rate contract. Those contractors would have had technology sector experience prior to becoming a contractor. So if you’ve got history within the industry and your salary makes sense within the work you’ve been doing, some lenders will look at it.

It limits the panel a little bit, but there will be opportunities. If you’ve only just started contracting in an industry that you’re not so experienced in, or you’re earning under a certain threshold, lenders may not be so happy. We generally recommend having a year’s worth of contracting history.

How do lenders calculate a daily rate contractor’s annual income?

Contracts are personalised to the individual. Generally speaking, they will look at your day rate and how many hours or days you’re contracted to work against your actual hours.

Perhaps you’re only contracted to work three days but you’re regularly working five days and being paid for it. Lenders can potentially use the five days rather than the three – it just depends on the individual and the lender. Each lender has a different policy depending on your job, your income and your contract.

Is there a difference in how I remortgage as a day rate contractor?

It will be treated the same way as with a normal mortgage. The same boundaries and rules from the lenders will apply. The only time where you wouldn’t have to go through the whole process all over again is if your broker arranges a product transfer for you. This is where you stay with the same lender.

It’s always worth going to your broker to do this, to see if there’s any exclusive offers they can get for you, or if they think moving to a new lender is the most beneficial thing for you to do.

What happens if I have bad credit as a daily rate contractor?

It’s a hard one because bad credit covers so many different things. The severity of your adverse credit can impact what you can and can’t do on your mortgage.

You’ll be treated the same as any employed or self-employed individual with adverse credit – it doesn’t differ because you’re a contractor. The level of adverse credit will determine which lenders we can use, and we would have to abide by their policies on contractors.

Some lenders won’t take contractors at all unless there are very specific circumstances. So if you are looking for a mortgage as a contractor, be as upfront with your broker as you can about any bad credit. You can generally download a credit report and send that to us, and we can figure out what’s best for you.

Can I put down a smaller deposit when applying for a mortgage as a contractor?

Yes – you’ll be given the same privileges as anybody else, and it’s usually acceptable to put down a 5% deposit, especially if you’re a First Time Buyer.

There will be lenders who offer 5% deposit mortgages to a day rate contractor. It just means that when you’re going through the underwriting process they may ask a few more questions to make sure that your income is stable.

They will probably look into your contract history a little more, for reassurance that you’re going to be able to maintain the payments.

Is there anything else we need to know about contractor mortgages for a First Time Buyer?

It’s pretty much a standard process. As long as you’ve met the requirements about contracting history, you should be fine.

If you’re uncertain about anything, it’s definitely worth bringing that up in the first discussion with your broker.

Can I get a joint mortgage with a partner who’s on PAYE?

Yes, and it works exactly the same way that any other application. Just because you’re a contractor and they’re PAYE, that won’t negatively impact anything to do with your mortgage.
It just means your incomes are assessed a little bit differently.

That all happens behind the scenes with the banks, so it’s not anything that you have to worry about. It’s all pretty standard. Any concerns would be flagged early on.

Do I need a specialist mortgage broker to help me when it comes to this kind of contractor mortgage on a daily rate?

Not necessarily a specialist, but if your broker has experience with day rate contracts that would be beneficial, because there are a lot of complexities to it.

But any broker is able to do it. I would just see if it’s something that they’re comfortable with or have much knowledge about. Somebody who knows how to do it will see where your case will sit pretty quickly. If it’s time sensitive, that could save you a couple days or a week in getting your mortgage offer through the door.

What else do we need to know about contractor mortgages on a daily rate?

I would just say that if you’ve got contract income, just be as prepared as possible. Have your current contracts to hand and any previous contracts, as well. Having all the documents in one place makes the detail easily accessible if your broker needs anything further from you.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.