TL;DR: Generally, contractor mortgages do not come with higher product fees than standard mortgages. However, you may pay more in interest or broker fees if your circumstances require a specialist lender. Your property may be at risk if repayments are not made.

Do contractor mortgages come with higher fees?

If you work as a contractor in the UK, you might worry that your employment status will lead to higher costs when buying a home. The good news is that “contractor mortgages” are not actually a specific type of product with their own unique price list. Instead, they are standard mortgage products that are assessed using different underwriting criteria.

In most cases, the fees you pay for the mortgage itself—such as arrangement fees or booking fees—will be exactly the same as those paid by a permanent employee. However, because contractors often have complex income structures, the path to getting those fees can sometimes involve different costs. Understanding these nuances can help you prepare your finances before you start your property search.

What fees should you expect?

When you apply for a mortgage, there are several standard costs involved. For a contractor, these usually include:

• Arrangement fees: This is what the lender charges to set up the loan. It can be a flat fee (typically around £999) or a percentage of the loan amount (such as 1%).
• Booking fees: Some lenders charge a small fee (around £99 to £250) just to secure a specific fixed-rate deal. This is usually non-refundable.
• Valuation fees: The lender needs to check that the property is worth the price you are paying. Some lenders offer free valuations, while others charge based on the property’s value.
• Legal fees: You will need a solicitor or conveyancer to handle the legal transfer of the property. These costs are independent of your status as a contractor.

While these fees are standard, a contractor might find themselves paying them to a specialist lender if high-street banks decline their application. Specialist lenders sometimes have slightly higher administrative charges because they perform more manual, in-depth checks on your contract history and accounts.

Will the interest rate be higher?

While interest rates are not technically “fees,” they represent the biggest cost of your mortgage. Whether you pay a higher rate depends on how the lender views your risk. If you have a long history of continuous contracts and a large deposit, you can often access the same competitive rates as anyone else.

If you have only recently started contracting, or if there are significant gaps in your work history, you might be limited to specialist lenders. These companies often charge higher interest rates to compensate for what they perceive as a higher risk. This is why it is vital to present your income clearly. Many lenders will now look at your “day rate” rather than just your salary and dividends, which can often help you qualify for better deals.

The role of broker fees

Many contractors choose to use a specialist mortgage broker. Because many high-street lenders use automated systems that may struggle to understand contractor income, a broker can manually navigate the market to find lenders who understand day-rate packaging.

Some brokers charge a fee for their services, often ranging from £300 to £600, or a percentage of the loan. While this is an “extra” fee, many contractors find it saves them money in the long run by helping them avoid high interest rates or rejected applications. Before applying, it is also wise to ensure your credit file is in good shape. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

Are there hidden costs for limited company contractors?

If you operate through your own limited company, your lender might require more documentation than a simple P60. You may need to ask your accountant to provide certified accounts or an reference letter. Some accountants charge a small fee for this service, which is a cost specific to self-employed and contractor applicants.

Additionally, if you use an umbrella company, your “pay slips” are usually sufficient, meaning you might avoid these extra accounting costs. However, you should always check with your mortgage provider to see exactly what evidence they require to prove your sustainable income.

How to avoid paying more than necessary

To keep your mortgage costs as low as possible as a contractor, you should aim to meet the “standard” criteria of as many lenders as possible. This typically includes:

• Having at least 12 months of contracting history in the same line of work.
• Ensuring you have at least 4 to 6 weeks remaining on your current contract.
• Keeping gaps between contracts to a minimum (typically no more than 6 to 8 weeks in a 12-month period).
• Providing a larger deposit, as a lower Loan-to-Value (LTV) ratio often unlocks lower fees and rates.

You can find helpful guidance on managing your finances and understanding mortgage types on the MoneyHelper website, which is a free service provided by the UK government.

Important risks to consider

Regardless of your employment status or the fees you pay, a mortgage is a significant financial commitment. Your property may be at risk if repayments are not made. If you find yourself unable to meet your monthly payments, the consequences can be severe. This could lead to legal action, repossession of your home, increased interest rates on your debt, and additional administrative charges that could make your financial situation harder to manage.

Contractors should be especially mindful of their “war chest” or emergency savings. Since contract work can be feast or famine, having a buffer ensures that even if you have a gap between contracts, your mortgage repayments remain up to date.

People also asked

Can I get a mortgage with only six months of contracting?

Yes, some specialist lenders will consider you if you have a history in the same industry, though you may face slightly higher rates or require a larger deposit compared to someone with two years of history.

Do lenders use my day rate or my accounts?

It depends on the lender; some will calculate your annual income by multiplying your day rate by 46 or 48 weeks, while others will look at your latest tax returns and net profit.

Do I need a bigger deposit because I am a contractor?

Generally, no. If you meet the lender’s criteria, you can often access mortgages with a 5% or 10% deposit, though having 15% or more can significantly reduce the interest rates available to you.

Is it better to apply as an umbrella employee or a limited company director?

Lenders treat these differently, so it depends on the individual lender’s policy. Umbrella workers are often treated similarly to permanent staff, while limited company directors are assessed based on dividends and salary or day rates.

Will gaps between contracts affect my mortgage fees?

Gaps won’t usually affect the “fees” you pay, but they may limit your choice of lenders, potentially forcing you toward more expensive products with higher interest rates.

Summary of contractor mortgage costs

In summary, while the question “do contractor mortgages come with higher fees?” usually has a “no” regarding the products themselves, the reality is more nuanced. The fees set by the bank are typically the same for everyone. However, the total cost of borrowing might be higher if your specific circumstances require a more flexible, and therefore more expensive, lender.

By preparing your documentation early, maintaining a solid work history, and seeking professional advice, you can often secure a mortgage that is just as affordable as one offered to a permanent employee. Always remember to factor in all costs, including legal fees and potential broker charges, to ensure you have a complete picture of your home-buying budget.