Contract-based underwriting is a mortgage assessment method used for professional contractors (typically IT, engineering, medical or finance). Instead of using salary + dividends from Ltd company accounts, the lender annualises the day rate on the current contract, ignoring corporation tax, retained profits and drawings.
The scenario
Ms C from Cambridge is an IT contractor operating through her own Ltd company for three years. Current contract £550/day, 18 months into a rolling engagement with a FTSE-100 client, current extension runs another 9 months. She wanted to buy a £395,000 property with a 10% deposit. Her Ltd company accounts showed £34,000 of salary + dividend (retaining the rest inside the company).
Why this case was awkward
On accounts-based underwriting the client could borrow ~£153,000 — nowhere near the £355,500 loan needed. Her own bank had assessed her that way and declined. Yet her real earning capacity was over £128,000 per year gross — she just chose not to draw it as personal income.
How different lenders treated the case
- Lender A — Contract-based: day rate × 5 × 46 weeks (£126,500 assessable). Requires 12 months' contracting history.
- Lender B — Contract-based: day rate × 5 × 48 (£132,000). Requires 6 months' history if prior PAYE in the same industry.
- Lender C — Accounts only: salary + dividend, 2-year average (£34k).
- Lender D — Salary + dividend + share of retained profit (£71,200 assessable).
Speak to a Mortgage Adviser
Get expert, advice across a comprehensive panel of 90+ lenders tailored to your situation. We'll find the right deal — and any costs are always agreed upfront.
Our approach
We placed the case with Lender A on contract-based underwriting. Evidence supplied: current contract, previous two contracts, CV, 3 months' business bank statements showing invoices being paid, and 3 months' personal bank statements. Assessable income of £126,500 comfortably supported the £355,500 loan at 90% LTV.
Outcome
DIP returned same day. Full offer issued 9 working days later on a 5-year fix at 4.94%. Broker fee: £199, agreed in writing before application.
Learnings for other contractors
- Ask whether the lender uses contract-based, accounts-based, or retained-profits underwriting — the answer changes borrowing by 2–4×.
- Keep at least one contract renewal on file — lenders like to see repeat business.
- Inside IR35 doesn't disqualify you — most contractor-friendly lenders now accept both statuses.
- If your current contract has less than 3 months to run, evidence the extension or the next contract before applying.
Frequently Asked Questions
- How is contractor income assessed for a mortgage?
- The most contractor-friendly lenders annualise the current day rate (typically day rate × 5 days × 46–48 weeks), ignoring accounts. Others use salary + dividend or salary + retained profit.
- How long do I need to have been contracting?
- Usually 12 months, or 6 months if you have prior employed experience in the same field. A few lenders will consider first-day contractors coming from a PAYE role.
- Does IR35 status affect my mortgage?
- No, but it changes the assessment method. Inside-IR35 contractors are often assessed on gross day rate less deductions; outside-IR35 contractors on day rate annualised.
Sources & References
- FCA MCOB affordability rules — Financial Conduct Authority
Anonymisation & consent
Client name, location and identifying details have been changed. Income figures, lender names and dates are indicative of the actual case handled by our advisers. Written and published with the client’s consent as an illustrative example — individual outcomes will vary based on your circumstances, lender criteria and market conditions at the time.
Published 24 July 2026 · Last reviewed 26 July 2026 by Matty Stevens · Compliance oversight: Primis Mortgage Network. Your home may be repossessed if you do not keep up repayments on your mortgage.
Need Expert Advice?
Speak to one of our mortgage advisors for free, personalised guidance.
Get Your Free Quote