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The word mortgage has different terminology depending on which part of the world you originate from. However, for many of our clients the definition is the same: borrowing funds from a financial institution to purchase a property for you to live in, or for investment purposes.

What is a contractor mortgage?

A contractor mortgage is no different to any other mortgage; it is the process in which the funding is obtained which differs.

Mortgages are authorised based on a set of criteria outlined by the lender being fulfilled by the borrower. However, historically lending criteria has been based on individuals being either employed, or self-employed. This conventional method is useless for the growing numbers of contractors and freelancers. These individuals do not fall under either of the categories and as a result, the amount they are entitled to borrow is massively differently to what they would like, and could comfortably afford, to borrow. To add to this, they have a history of suffering from higher rates of interest because lenders perceive them as high risk.

A variety of these lenders have since been educated about the misconceptions regarding contractors. They are now aware of the low risk these borrowers are, which in turn has led to their lending criteria being updated to suit the current workforce. The result is an underwriting process specifically designed for contractors and freelancers.

Firstly, income can be assessed on a multiple of annualised contract rate, thereby allowing contractors to borrow more in line with true earnings. Secondly, mainstream interest rates can be accessed so that higher rates of interest are a thing of the past.

Essentially, there is no such thing as a contractor mortgage, just a set of rules and definitions whereby underwriters will assess mortgage applications based on specific criteria for the contractor and freelancing community in the UK.

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