Being an independent contractor comes with unique challenges when it comes to securing independent contractor mortgages and loans. There are, however, many advantages to being a day-rate contractor. From choosing your own working hours to selecting the projects that appeal to you most, being a contractor is great in many ways. But it is not without its downsides, and one of the main disadvantages is how some lenders will view your income.
Fortunately, there are loans available for contractors and the self-employed. In this post, AMS Mortgages looks at who counts as a contractor, why it’s difficult for those in this industry to get a mortgage, and independent contractor loans.
What is an independent contractor?
An independent contractor is a self-employed worker who works independently on a contract basis, bringing flexibility and autonomy to themselves and their employers. With control over their schedules and unique expertise, independent contractors tackle exciting projects for clients or companies. As experts in their own destiny, independent contractors are responsible for their own taxes, insurance, and business expenses (some of which will be recharged!).
Examples of contractor roles
These contract freelance workers may work in various industries and can fulfil various functions. ams: have set up dedicated service pages for numerous contractor-type roles including:
Here at ams: we also have a specialist mortgage service for those seeking zero hour contract mortgages.
What is the difference between being an independent contractor and a self-employed person?
An independent contractor is self-employed, but the reverse is not necessarily true. Neither is an employee of a company, but an independent contractor is hired by a company, while a self-employed individual may be generating income in an alternative manner.
Why is it difficult to get a loan as an independent contractor?
It’s challenging for contractors to secure independent contractor loans because of the unpredictability of their income. Seeing as freelancers are not guaranteed any specific monthly income, it is difficult for banks and financial institutions to determine their eligibility. Lenders will assess a contractor’s ability to meet repayments during periods of income fluctuation, so being able to demonstrate past financial stability is crucial.
For this reason, lenders are likely to request proof of contracts and future work commitments to assess your income stability. Contractors need to be prepared to provide documentation such as client agreements, tax returns, invoices, bank statements or forward-looking project contracts to support mortgage and loan applications.
Contractor mortgages and IR35 regulations
IR35 regulations can impact mortgage applications for contractors who work with intermediaries. It is essential to understand how these regulations affect your income classification and the potential implications for mortgage eligibility. For further information, read this detailed IR35 blog post from ams:
The importance of a strong credit profile
Building a strong credit profile is crucial for independent contractors aiming to improve their mortgage eligibility. Consider the following good working practices:
- Reviewing your credit report(s)
- Ensure timely payments on all outgoings
- Effective management of dents
- Maintain low credit utilisation and minimise new credit applications
- Diversify your credit mix
- Seek professional guidance (see the next section!)
Seeking professional advice from mortgage advisors
While the lack of financial stability, job security and benefits make it difficult to secure a loan, there are specific options for those in this line of work. Consulting with mortgage advisors who specialise in arranging independent contractor mortgages and independent contractor loans will provide invaluable guidance.
Mortgage advisors will assess your specific situation, navigate lender requirements, and help you secure the most suitable independent contractor mortgages or independent contractor loans. AMS Mortgages offers contractor mortgages with leading lenders, who will use your contract value (day rate) to determine your affordability. All lenders will conduct affordability assessments to evaluate your ability to meet future mortgage or loan repayments. They consider factors such as income, expenses, and existing financial commitments. Be prepared to provide detailed information to support these assessments.
Support for bad credit profiles and circumstances
Even where an independent contractor has a bad credit profile, all is not lost - ams: can help with independent contractor mortgages! We have lots of experience of working with clients (including contractors) who have adverse credit situations including CCJs, IVAs, DMPs, missed mortgage payments, defaults, and other bad credit situations.
Other ams: contractor-related blog articles
We also highly recommend reading through the following contractor-related blog articles from ams:
- Tips for saving a contractor mortgage deposit
- Owning versus renting - a contractor mortgage dilemma and
- Can you afford a contractor mortgage?
Contacting ams: the independent contractor mortgages experts
At ams: we’re specialists at helping those who struggle to get independent contractor mortgages find one that works for them and would be happy to help you. Contact us today or call 0121 4000 052 to speak to a qualified mortgage advisor.