Contractor Mortgage Gap in Employment

One of the risks of contracting is that there can be a few weeks’ gap between contracts, where you’re not receiving an income. Mortgage lenders vary in how long a gap they will accept – talk to us about how to find the right provider for your situation.

What is an acceptable gap between contracts from a mortgage point of view?

Generally lenders want all prospective customers to have a steady, reliable income so that meeting the repayments on your mortgage is never a challenge. 

But at the same time many lenders understand the contracting world and that not every contract flows seamlessly on from the one before. To those more specialist lenders, up to six weeks’ pause between contracts is usually acceptable.

Many contractors choose to take the school holidays off with their children or take a travel break when circumstances permit. Most lenders won’t question your reasons for a break of under six weeks.

But if you have regular breaks of multiple weeks, lenders may question whether the lack of continuous employment might cause affordability issues. 

Are there other routes for contractors with gaps between contracts?

Generally having the occasional gap isn’t a big challenge. Talk to a mortgage broker and explain your situation – if there is a good reason for a gap, lenders will often understand.

If you do have a number of gaps in your contracting history in the past 12-24 months, there is another route you could pursue.  You could decide to approach a lender as a self-employed customer or as a Limited Company Director. 

That way, lenders purely look at your total annual income or your salary and dividends. You will need two years’ worth of accounts to have the most competitive choice of lenders. With this route, your self-employed history in contracts is not relevant.

We will advise you whether this is a better option than pursuing a contractor mortgage, depending on your situation.

What documents are needed by a contractor to prove self-employed income?

The documents you will need can vary depending on the lender and how you present yourself in the application. 

If you are self-employed you will often need tax forms (SA302 forms), your tax return (SA100 forms) and HMRC tax overview. 

You will usually need to show recent and current contracts that state your day rate and the length of your appointment. High street lenders will often ask for business bank statements to match up your income. Your credit score will also be explored as part of the process when you apply for a mortgage.

Can contractors show annual accounts instead?

If your business is set up as a limited company you will need to show your annual accounts as certified by a Chartered Accountant. Having less than two years of annual accounts can limit the number of lenders that will consider you. It is, however, still possible to get a mortgage with just 12 months’ accounts.

Can a lender consider gaps between contracts in exceptional circumstances?

Generally if there are exceptional circumstances, lenders will be more understanding. Many contractors were affected by the Covid pandemic, for example, and lenders were very flexible about that. 

If gaps have been caused by an injury, medical condition or family issues then, again, lenders will potentially ignore the break. Instead they will look at the general trends in your contracting history.

We will talk to the lenders on your behalf to make sure we identify a provider that is happy to accept your situation.

How does a gap in employment affect your contractor Buy to Let mortgage application?

Buy to Let mortgages are generally based on the rent that your property will generate rather than your working history as a contractor. That said, many lenders will want reassurance that you meet minimum income requirements. This is to ensure you can cover repayments on your mortgage if the property is empty or your tenants fall into rental arrears.

Most lenders will want to see proof of income, contracting history, credit rating, bank statements and identity documents. In general, though, because contractors tend to receive a competitive salary, a gap in employment should not usually cause any issues. 

How can Mortgages by McAteer help?

We have many years’ experience in working with contractors to find suitable mortgage deals. We work with First Time Buyers, home movers and those looking to remortgage and explore all the options. 

Contractor mortgages are available with many banks and other financial services providers, and we will recommend the most effective way to achieve your goals. 

Mortgages by Mcateer Ltd is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

Some buy to let mortgages are not regulated by the Financial Conduct Authority

Approved by The Openwork Partnership on 02/01/2024