When it comes to securing a mortgage as a contractor, one of the most critical aspects to consider is the mortgage rate. Understanding how contractor mortgage rates work, and what influences them, can help you secure a deal that fits your financial situation.
Here’s what you need to know about contractor mortgage rates.
1. Fixed vs. Variable Mortgage Rates
Fixed-rate mortgages offer stability, locking in your interest rate for a set period—usually 2, 3, or 5 years. This is a good option if you want predictable monthly payments, especially as a contractor whose income may vary.
Variable-rate mortgages, on the other hand, can fluctuate based on market conditions, usually tied to the lender’s standard variable rate (SVR) or the Bank of England base rate. While variable rates can start lower, they can increase over time, so it’s essential to monitor the rates.
2. Factors Affecting Your Mortgage Rate
Several factors can influence the rate you’re offered, including:
Credit score: A higher score generally results in a better rate.
Deposit size: A larger deposit (typically 20% or more) can lower the rate and give you access to better deals.
Length of contracting history: Lenders prefer contractors with a stable and long history. The more years you’ve been contracting, the more likely you’ll receive a favorable rate.
Loan-to-value (LTV): The higher your LTV, the higher the rate. Contractors with a lower LTV (i.e., a larger deposit) are more likely to secure lower rates.
3. Why Rates for Contractors Differ
Contractors are seen as higher-risk borrowers due to the nature of their income. Unlike salaried employees, contractors can face gaps between contracts or periods of downtime. As a result, lenders may offer higher rates or require more paperwork to ensure your ability to repay the mortgage.
However, with the right lender or specialist contractor mortgage broker, you can still secure competitive rates by presenting your contract history and financial stability.
4. How to Secure the Best Mortgage Rate
Maintain a good credit score: This can significantly reduce your interest rate.
Increase your deposit: A larger deposit reduces the loan-to-value ratio and can secure a better rate.
Work with a specialist broker: Brokers who understand contractor incomes can match you with lenders offering the best deals.
Final Thoughts
Securing a competitive mortgage rate as a contractor is possible with the right preparation and understanding. Working with a mortgage broker can help you navigate the process and find the best deal suited to your needs.
At Contractor Mortgage Solutions, we offer expert advice and access to specialist lenders to ensure you get the best rate possible.