How Are Mortgages for Contractors Calculated
Mortgages for contractors are calculated in one of three ways, depending on the lender. The day-rate method annualises your current contract rate. The accounts method uses your tax returns or company accounts like any self-employed application. The salary-plus-dividend method applies to limited company contractors who pay themselves that way.
The day-rate method is usually the most generous, because it uses your current rate rather than last year's accounts, but not every lender offers it, and those that do often require a minimum day rate and a contract history. The accounts method is slower and can understate income if your last filed year was weak.
Whichever method applies, the lender then runs the usual affordability checks: stressed monthly payment against income, outgoings, credit history and deposit size. Contractors with variable income should also keep a cash buffer, because a gap between contracts does not pause the mortgage payment.
- Three methods: day-rate annualisation, accounts, or salary plus dividends.
- Day-rate is usually most generous but not offered by every lender.
- Affordability checks and deposit rules still apply on top.
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