Day Rate Mortgage - How to Borrow at Your Daily Rate

05-January-2024 10:02
in Mortgage
by Sam Hodgson
Day Rate Mortgage

As a contractor or freelancer in the UK, your income situation can make getting a mortgage more difficult than if you were a permanent employee. This is especially true if you are compensated on a day rate basis.

While your daily or hourly contract rate may be high, limited company complexities mean your actual take-home pay reported on your tax return can be much lower.

Especially if you're leaving a lot of money in your Ltd company for business expenses while only withdrawing a minimal salary and dividends to pay less tax.

This can restrict how much you can borrow, or what type of mortgage you can access, when lenders assess affordability based on your taxable income rather than your full earning capability.

However, there are specialist mortgage lenders and brokers experienced in securing contractor mortgages calculated on your daily rate. This opens up your ability to borrow more significant sums compared to standard salary calculations.

At Clifton Private Finance, we work with contractors, consultants, and freelancers to secure mortgages and unlock the full value of your day-rate income. And in this article, we’ll explore how day rate mortgages work, what you’ll need to apply, and why experts like us can help make the process as simple as possible.

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In this blog:

How Are Day Rate Mortgages Calculated?

Day Rate Mortgages in Action

What are the Benefits Of A Day Rate Mortgage?

Having Your Documents In Order

Tips for Optimising Your Application

Need Help with Day Rate Mortgages?

How Are Day Rate Mortgages Calculated?

With day rate mortgages, rather than assessing affordability based on your annual salary and dividends from your limited company, lenders will consider your:

  • Daily or hourly contract rate
  • Typical days/hours worked per week
  • Weeks worked per year accounting for holidays and gaps between contracts

For example, if your day rate is £500, we work with lenders that could use the following calculation for your affordability:

These examples demonstrate how day rates can lead to much higher borrowing figures.

Especially higher than if your mortgage was assessed solely on your tax return income after company expenses and dividend planning.

Day Rate Mortgages Case Study

Let’s take a look at how that works in action – and how we've secure competitive day rate mortgages in the past for complex scenarios. Here’s is an example from one of our recent clients:

  • The client was an IT contractor living in West Yorkshire who was compensated in Euros based on a daily contracted rate. He was hoping to purchase a £611,000 detached home but needed a substantial mortgage of around £488,000 to cover the 80% loan-to-value amount.

  • Given his day rate income structure and the high LTV, he had already been rejected by two mainstream lenders who were unable to accommodate his unique situation - they told him it simply wasn't possible.

  • However, through our knowledge of lenders who calculate income based on day rates rather than annual salary, we were able to secure him a 5-year fixed rate mortgage at a competitive interest rate, with 75% LTV and a split between part-repayment and part-interest-only to match his preference for flexibility.

  • While such a large mortgage at a high LTV would have been impossible through standard lenders, our expertise in contractor day rate loans meant we could identify a suitable product to make his dream home a reality.

This is just one example of the specialised solutions we can unlock for contractors. With an in-depth understanding of the intricacies of day rate income, we are able to leverage our experience to match you to the optimal lenders for your circumstances.

Day Rat Mortgage - Contractor Mortgage Case Study

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What are the Benefits Of A Day Rate Mortgage?

Day rate mortgages open up your ability to borrow more because they consider your full income potential rather than just your take-home pay after company costs and tax-efficient salary/dividend planning.

There are other advantages too, such as:

  • Access to better interest rates due to higher calculated income
  • Funding to buy more valuable properties
  • Remortgaging potential to unlock cash from existing properties

For contractors specifically, it provides a way to get a substantial mortgage that aligns with your earning capability, overcoming limited company complexities.

Documents Needed for Day Rate Mortgages

When applying for a day rate mortgage, you'll need to have your paperwork and finances in good order. This provides proof to lenders of your income and ability to meet repayments over the long term.

Some of the key documents you should prepare include recent contracts showing your role, day rate and duration. This gives the clearest picture of your true earning potential. You'll also need:

  • 1-2+ years of accounts
  • SA302 tax calculations
  • Tax overviews
  • Bank statements evidencing contractor payments
  • Proof of ID and residence
  • As well as any paperwork demonstrating your future work pipeline.

The more organised you are with your financial data, the more you demonstrate to lenders that you operate in a business-like manner.

This can really help to ease their ability to accurately assess your affordability. An experienced broker can advise exactly which documents your particular lender will require to process your application smoothly.

Tips for Your Day Rate Mortgage Application

When applying for a substantial day rate mortgage, you want to put yourself in the best position possible for securing a competitive deal at the maximum borrowing amount. Here are some tips:

  • Try to maintain a consistent contracting income history over at least 2+ years. This demonstrates earnings stability to lenders.
  • Use an accountant to prepare your finances.
  • Put down as large of a deposit as you can afford. The lower the loan-to-value, the lower the risk for lenders.
  • Keep your credit history clean. Avoid missed payments or defaults wherever possible.
  • If applying soon, avoid changing your income structure. Lenders favour stability.

The key is being able to demonstrate steady and reliable day rate earnings over time. This provides lenders far greater comfort that your income will continue to support your repayment ability.

How We Can Help

At Clifton Private Finance, we fully understand the intricacies and complexities that come with day rate contractor earnings. Our dedicated advisors leverage their in-depth knowledge to optimise your application and unlock the maximum financing you qualify for.

We take care of the full process from start to finish, so you can focus your efforts on finding your perfect home. Our team will source the most suitable lenders for your circumstances, ensure your income and eligibility is presented in the best light, negotiate improved terms where possible, and efficiently handle applications to make approvals as smooth as possible.

To discuss your financing needs and find out how we can help maximise your mortgage through your daily contractor income, contact us today at 0117 959 5094 or book a free consultation below.

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