TL;DR: Yes, contractors can typically use government mortgage schemes provided they meet standard eligibility and lending criteria. Your property may be at risk if repayments are not made, so it is vital to understand how different lenders assess irregular or day-rate income.

Can contractors use government mortgage schemes?

For many years, independent professionals and freelancers felt that the path to homeownership was more difficult than for those in traditional employment. However, the UK mortgage market has evolved significantly. Today, the answer to “can contractors use government mortgage schemes?” is generally yes. Most government-backed initiatives are designed to help people get onto the property ladder, and they do not explicitly exclude those who are self-employed or working on a contract basis.

While the schemes themselves are open to contractors, the challenge usually lies in the mortgage application process. Lenders have different ways of calculating “affordability” for contractors. Some may look at your net profit, while others may use your day rate to determine how much you can borrow. Understanding these nuances is the first step toward successfully using a government scheme to buy your home.

Understanding Government Mortgage Schemes for Contractors

Government mortgage schemes are initiatives designed to make housing more affordable. They often work by reducing the required deposit, offering equity loans, or allowing you to buy a share of a property. For a contractor, these schemes can be particularly helpful if you have a high income but have not yet saved a large deposit, or if you are looking to buy in an expensive area like London or the South East.

The eligibility for these schemes usually depends on your residency status, your income level, and whether you are a first-time buyer. Being a contractor does not change these basic rules, but you will need to provide robust evidence of your earnings to satisfy the mortgage lender who provides the “private” element of the loan.

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Types of Government Schemes Available

There are several different programmes available in the UK. Each has its own set of rules regarding property types and buyer eligibility.

Shared Ownership

Shared Ownership allows you to buy a percentage of a property (usually between 10% and 75%) and pay rent on the remaining share, which is typically owned by a housing association. This is often an excellent option for contractors who may have a smaller deposit. You can “staircase” over time, meaning you buy more shares as your financial situation allows. Lenders will assess your contractor income to ensure you can afford both the mortgage payments and the rent.

First Homes Scheme

The First Homes scheme offers a discount of at least 30% on the market value of newly built homes for first-time buyers and key workers in England. This discount stays with the property forever, meaning when you sell it, the next buyer also benefits from the lower price. Contractors who meet the local authority’s eligibility criteria can apply for this scheme, provided they can secure a mortgage for the remaining 70% of the property value.

The Mortgage Guarantee Scheme

This scheme was designed to encourage lenders to offer 95% Loan-to-Value (LTV) mortgages. This means you only need a 5% deposit. The government provides a guarantee to the lender to cover a portion of any potential losses. Many high-street lenders participate in this scheme, and many are happy to consider contractors, provided they have a consistent work history.

Right to Buy and Right to Acquire

If you are a council tenant or a housing association tenant, you may have the right to buy your home at a significant discount. Contractors living in social housing are just as eligible as anyone else. The primary hurdle here is proving to a lender that your contract income is stable enough to support the mortgage on the discounted price.

How Lenders View Contractor Income

When you ask, “can contractors use government mortgage schemes?”, the real question is how a lender will view your application. There are generally three ways a lender will assess a contractor:

• Day Rate Assessment: This is often the most favourable for contractors. The lender takes your daily rate, multiplies it by the number of days you work per week (usually 5), and then multiplies that by 46 or 48 weeks to get an annualised income.
• Salary and Dividends: If you operate via a Limited Company, lenders may look at the salary you pay yourself plus the dividends you draw. This can sometimes result in a lower borrowing limit if you keep a lot of profit within the business for tax efficiency.
• Net Profit: For sole traders, lenders typically look at the net profit shown on your Self Assessment tax returns (SA302).

Most government schemes require you to use a regulated mortgage lender. It is often wise to speak with a specialist broker who understands contractor income to ensure you are matched with a lender that uses the most generous assessment method for your specific situation.

Risks and Considerations

While government schemes offer a “leg up,” they are not without risks. It is important to remember that a mortgage is a long-term financial commitment. Your property may be at risk if repayments are not made. Failure to keep up with your monthly payments could lead to legal action, and ultimately, the repossession of your home. Additionally, missing payments can result in increased interest rates and additional charges, which could further strain your finances.

For contractors, there is the added risk of “gaps” between contracts. When applying for a government scheme, you should consider whether you have sufficient savings to cover your mortgage and any rent (in the case of Shared Ownership) during periods when you might not be working.

Steps to Apply for a Scheme as a Contractor

If you are ready to move forward, follow these general steps to improve your chances of a successful application:

• Gather your documents: You will generally need at least 12 to 24 months of accounts or your current contract showing your day rate.
• Check eligibility: Visit the official Own Your Home website to see which schemes are currently active and which ones you qualify for.
• Minimise gaps: Try to avoid long breaks between contracts in the months leading up to your application, as lenders prefer to see continuous employment.
• Save a larger deposit if possible: Even if a scheme only requires 5%, having a larger deposit can sometimes open up better interest rates and more flexible lending criteria.

People also asked

Can I get a 5% deposit mortgage as a contractor?

Yes, contractors can access 95% mortgages through the government’s Mortgage Guarantee Scheme, provided they meet the lender’s specific criteria regarding contract length and history.

Do I need three years of accounts to use a government scheme?

Not necessarily; while some lenders prefer three years, many specialist lenders will consider contractors with only 12 months of history or even those on their first contract if they have a history in the same industry.

Is Shared Ownership available for self-employed contractors?

Shared Ownership is available to contractors, but you must demonstrate that you can afford the combined costs of the mortgage, rent, and any service charges associated with the property.

Can I use the First Homes scheme if I work through an umbrella company?

Yes, working through an umbrella company is a common way for contractors to operate, and lenders will typically treat your income similarly to a permanent employee’s salary, making it easier to qualify for schemes like First Homes.

What happens if my contract ends while I’m applying?

If your contract ends during the application process, you must inform your lender; they may pause the application until you secure a new contract to ensure your income remains stable.

Final Thoughts

The UK government is committed to increasing homeownership, and their schemes are broadly inclusive of different employment types. Contractors can and do use these schemes every day to secure their homes. By preparing your paperwork, understanding how your income is calculated, and seeking expert advice, you can navigate the complexities of the mortgage market. Always ensure you have a financial buffer in place to manage the risks associated with contracting and property ownership.