Mr Affordability says: What is the best way to assess contractor income?

Each of these lenders have different rules around minimum income, minimum contract length and contract gaps, but they all share a consistent approach to the stance they take on assessing contractor income based on day rate versus salary and dividends. All lenders look favourably at contractor income over salary and dividends.

To highlight this affordability advantage for day rate contractor calculations we tested a typical contractor example, on a mortgage term of 22 years at 84% LTV.

First, we ran the case as a contractor who earns a daily rate of £475 and then we ran the calculations as a contractor earning an equivalent income but drawing it as limited company director taking salary and dividends.

The company director model, drawing salary and dividends, gave consistently lower figures than the day rate model, and with both approaches there were significant differences between the amount the top lender would lend, compared to the bottom lender. In fact, when lenders calculated affordability based on day rate, the difference between the top amount and the bottom amount for the 16 lenders was more than 30%, which is much larger range than you might normally find.

This research demonstrates that not all contractor mortgages are created equal, and it pays to shop around if you are working with clients who want to maximise their borrowing potential. Fortunately, this research can be carried out using just one fast and intuitive affordability calculator – let MBT Affordability take the strain.