How Day Rates, Contracts & Income Are Assessed
Contractors can access a wide range of mortgage options, often with borrowing power that exceeds traditional employed or self-employed assessments. Many lenders use a day-rate calculation rather than tax returns, which can significantly increase affordability — especially for IT, engineering and professional contractors.
This guide explains how contractor mortgages work, what documents lenders need, how day-rate calculations are applied, and how to maximise your borrowing potential.
Who Counts as a Contractor for Mortgage Purposes?
You’re classed as a contractor if you work on a fixed-term or rolling contract basis rather than permanent employment. This includes:
- IT, Engineering, and Construction contractors
- Professional/consultancy contractors
- Umbrella company contractors
- Ltd company contractors
Lenders treat umbrella and Ltd company contractors slightly differently, but both can qualify for contract-based underwriting.
How Lenders Assess Contractor Income
Contractors usually benefit from bespoke underwriting. Instead of using salary + dividends or net profit, many lenders use your current contract rate to assess income.
Common formula:
Day rate × 5 × 46 = Annualised income
Example: Day rate: £400 £400 × 5 × 46 = £92,000 assessed income This often results in much higher borrowing power than standard self-employed calculations.
Do You Need 2 Years of Accounts?
No — many contractor-friendly lenders do not require 2 years of accounts. Some lenders accept:
- 0–12 months contracting history
- First ever contract (for high-skilled professions)
- Only the contract itself + bank statements
Umbrella vs Limited Company Contractors
- Umbrella Company Contractors: Most lenders will use the contract rate, not umbrella payslips. Some lenders adjust for umbrella deductions.
- Limited Company Contractors: Lenders often use contract rate. Some will use salary + dividends if contract evidence is unclear. A few lenders consider retained profits as well.
If you operate as a self-employed director, our full guide explains more: Self-Employed Mortgage Guide.
Documents You Need for a Contractor Mortgage
Contractor mortgage paperwork is often much lighter than standard mortgages:
- Current contract & Contract history (if applicable)
- CV showing experience
- 3–6 months personal & business bank statements
- SA302s (only if requested)
Minimum Contract Length & Gaps
Most lenders prefer at least 3 months left on your current contract or evidence it is likely to be renewed.
- Small gaps (1–8 weeks): Usually accepted.
- Longer gaps: May require explanation.
- Continuous contracting: Improves lender choice.
Affordability & Borrowing Capacity
Because contractor income is annualised, borrowing power can be much stronger.
Example Comparison:
- Contractor: £350 day rate = £80,500 assessed income (Borrowing ≈ £320k–£360k)
- Director: £12k salary + £30k dividends = £42k total income (Significantly lower borrowing)
For broader affordability rules, see: How Much Can I Borrow?
Contractor Mortgages With Credit Issues
If you have a strong contract rate, some specialist lenders will still consider you even if you have adverse credit, such as Defaults, CCJs, Late payments, or Payday loans.
Relevant guides:
- Defaults Guide
- CCJs Guide
- Payday Loans Guide
How to Strengthen Your Application
- Keep contract extensions documented.
- Maintain a clean bank statement trail.
- Avoid new unsecured debt before applying.
- Have a professional CV ready.
- Use the contract rate method whenever possible.
Next Steps
Contractor mortgages can offer far greater borrowing power than traditional income assessments — but choosing the right lender is essential. Understanding how day-rate calculations work can make the approval process straightforward.
Explore related guides such as Self-Employed Mortgages, How Much Can I Borrow?, and use our mortgage calculators to estimate borrowing strength.
All mortgage advice is provided by FCA-regulated advisers. Your home may be repossessed if you do not keep up repayments on your mortgage.
FAQs
Can I get a mortgage with my first contract? Yes — many lenders will consider strong first-time contractors, especially in IT and professional sectors.
How many years of contracting history do I need? Often none — although 12 months history strengthens options.
Do lenders use day rate or salary? Most contractor-friendly lenders use day-rate calculations.
What if my contract has less than 3 months left? You can still apply — lenders may request a renewal or evidence of previous contract history.
Does umbrella vs Ltd company matter? Yes — umbrella contractors may have more paperwork, but both can access contract-based underwriting.