Transitioning from permanent employment to contracting can impact mortgage options, but existing homeowners have several advantages to secure better deals:
1. Switch to Contractor-Specific Products (Often 0.5% Cheaper)
Many specialist lenders offer contractor mortgages with rates up to 0.5% lower than standard products. These assess affordability based on day-rate contracts rather than traditional income proofs, making them ideal for:
Recent contractors without 2+ years of accounts
High-earning professionals (IT, engineering, finance)
Those with strong credit but variable income
2. Release Equity Using Current Contracts
If you have existing home equity, lenders may allow remortgaging to release cash based on your current contract rate (rather than historic accounts). This can help:
Fund deposits for buy-to-lets or holiday lets
Invest in home improvements to boost property value
Consolidate higher-interest debts
3. Fix for Longer Terms During Profitable Periods
Contracting income can fluctuate, so locking in a 5-year or 10-year fixed rate during a high-earning phase provides stability. Benefits include:
Protection against future rate hikes
Easier financial planning with predictable payments
Avoiding affordability reassessments if income dips later
Pro Move: Remortgage 6 Months Before Rate Expires
Many contractors get trapped in expensive Standard Variable Rate (SVR) mortgages after their fixed term ends. To avoid this:
Start remortgage applications 6 months early (some lenders allow this)
Use a mortgage broker to compare contractor-friendly deals
Secure a new rate before your current deal expires, preventing SVR shock
Example Scenario
A software developer (previously salaried) switches to a £500/day contract. By:
Switching to a contractor mortgage, saving £200/month on interest
Releasing £50k equity to buy a rental property
Fixing for 10 years at 4.5% (vs. risking future 7%+ rates)
Result: Better rates, increased cash flow, and long-term security.
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