Contractor Mortgages: Borrowing on a Day Rate

How day rate assessment works

A contractor-friendly lender ignores your accounts and works from your contract. The standard calculation is day rate multiplied by five days, then by 46 or 48 weeks, to produce an annual equivalent. A 450 per day contract at 46 weeks becomes 103,500 of assessable income.

That figure is then treated much like an employed salary, so income multiples of four to five times are typically available. A contractor drawing modest dividends through their own company often finds this route doubles what mainstream lenders would offer.

Who qualifies

Criteria vary, but a typical contractor lender is looking for:

• Six to twelve months of continuous contracting, and sometimes less where you are in the same field as previous employment
• A current contract with at least a few weeks left to run, or a renewal in hand
• A consistent day or hourly rate rather than a rate that has jumped sharply
• No significant gaps between contracts beyond normal breaks
• Any trading structure: umbrella, own limited company, sole trader or agency PAYE

IR35 and inside or outside status

Lenders are generally relaxed about IR35 status itself. Inside IR35 contractors paid through an umbrella company are often assessed on gross contract value or on payslips, while outside IR35 contractors are usually assessed on contract value.

What matters more is documentary clarity: a signed contract stating the rate, the parties and the term, plus bank statements showing the payments arriving.

Common pitfalls

Two things trip contractors up. The first is applying to a lender with no day rate policy, being assessed on two years of dividends, and being offered far less than expected. The second is a rate that has recently increased sharply, which can lead a cautious underwriter to average the old and new rates.

Keep a clean record of every contract, including expired ones. A continuous chain of contracts is the evidence that makes a short contracting history acceptable.