The way lenders work out how much a contractor can borrow for a mortgage is a simple equation. But most of our clients are in a hurry – time is money, after all – and they want a quick answer.
We also figure that the more work we put in up front the less chance clients have of making an error. The last thing you need is to submit a mortgage application for a home you can’t afford. That could lead to all manner of issues, especially with your credit rating.
So we’ve all but closed the window for error with our three bespoke calculators. The maths behind them is specific to our clients: limited company and umbrella contractors.
Curious to know how much you can borrow using your contract day rate?
Impress yourself, friends and family with your potential contractor mortgage affordability:
Why do contractors need a special mortgage calculator?
We’ve had to build a specific calculator for contractor mortgage borrowing. That’s because generic forms on mortgage lenders’ sites don’t help most independent professionals. Their calculators rely on ‘take home’. Yep, you’ve guessed it…
…as a limited company owner, you keep drawings and salary low for tax-planning. Most High Street lenders use that low figure to calculate your potential mortgage borrowing.
How much can you borrow using your day rate?
The first of our three affordability tools is our contractor mortgage calculator. The concept is simple: it uses your ‘annualised’ day rate to give you a guide to how much you could borrow.
Annualised rate? What’s that? It’s your current day rate x 5 days per week x 48 weeks per year. That’s the calculation that the most contractor-friendly lenders use, so we use it too.
We then factor in the ‘multiplier’. That’s the number lenders use to work out your borrowing potential.
Again, we use the most common multiplier you can find in the market. In this case, it’s 4.5. Some lenders will even go to 5.0 times, but for our calculator we use the smaller multiplier.
So your potential borrowing is 4.5 times your annualised day rate, other factors notwithstanding*.
To get your estimate, slide the button in the calculator along to match your day rate. The amount you could borrow will reflect the potential mortgage that your day rate can secure for you.
Your potential borrowing is not a firm mortgage offer or decision in principle
We must point out that you can’t use the figure the calculator returns as a firm mortgage offer.
If you need an exact amount, you must call us or request a call back. One of our advisors will be happy to help. They’ll give you a ‘decision in principle’ based on your contract rate within 24 hours.
*Why can’t the calculator give us an exact figure?
As a leading specialist mortgage broker, we’ve secured thousands of mortgages for contractors. We’ve grown with and developed the market over the last ten years.
As such, we can state with utter confidence that there’s no one-size-fits-all calculation.
Each client runs their business in their own unique manner. Their financial, statistical and personal circumstances are unique, too. We take all that information and match it with the best lender for those criteria.
We also take into account a contractor’s position on the property ladder. Where they are now will dictate the type of mortgage they want moving forward.
Who can use the calculator (and what for?)
Fixed, variable or interest-only at competitive mortgage rates? We have a mortgage solution for the vast majority of contractors.
We can accommodate first-time homebuyers, those remortgaging and home mover mortgages.
We’re also flexible on repayment terms, starting with 5% deposit mortgages and upwards. But again, the bigger deposit you can find, the lower your monthly payment over the long term.
And talking of your monthly mortgage payment, we have two more calculators for you.
One will work out your monthly mortgage payment based on your potential borrowing. It’s great seeing that figure in black and white. But you must realise the financial commitment such borrowing entails.
The other is a stamp duty calculator. If your home costs more than £125,000, you will qualify to pay Stamp Duty.
Once you have used them all, you can tie down your contractor mortgage budget. When you’re ready, you can impress our advisors with the homework you’ve done already. Happy house hunting!
