How Day Rate Annualization Works
When you're a contractor paid a daily rate, mortgage lenders need to convert this into an annual income figure for their affordability calculations. The basic formula is:
The variables in this equation — particularly weeks per year — vary by lender, which can significantly affect your borrowing capacity.
The key variable
Why Weeks Matter
Different lenders assume different numbers of working weeks per year:
weeks
4 weeks off
Contractor-specialist lenders
weeks
6 weeks off
Conservative mainstream lenders
weeks
8 weeks off
Very conservative (rare)
Days Per Week
Lenders typically use your actual contracted days. Most contractors work 5 days, but 4-day weeks are common. If you work 4 days at a higher day rate, this is usually accepted at face value.
Worked Examples
Example 1: £400/day, 5 days/week
48 weeks
£96,000
Borrowing: £432k
46 weeks
£92,000
Borrowing: £414k
44 weeks
£88,000
Borrowing: £396k
Difference between best and worst: £36,000 borrowing
Example 2: £500/day, 5 days/week
48 weeks
£120,000
Borrowing: £540k
46 weeks
£115,000
Borrowing: £517k
44 weeks
£110,000
Borrowing: £495k
Difference between best and worst: £45,000 borrowing
Example 3: £600/day, 4 days/week
48 weeks
£115,200
Borrowing: £518k
46 weeks
£110,400
Borrowing: £497k
44 weeks
£105,600
Borrowing: £475k
Difference between best and worst: £43,000 borrowing
Lender Requirements
Common Requirements for Day Rate Treatment
- Minimum contracting history: Usually 12-24 months
- Current contract: Must be on contract or within 6-8 weeks of last one
- Minimum remaining contract: Some require 3-6 months remaining
- Contract documentation: Signed contract showing rate and terms
- Outside IR35: Some lenders require this for day rate treatment
Contractor-Specialist Lenders
CLS Money / CMME
- • 48 weeks annualization
- • 12 months contracting history
- • Broker-only
Kensington
- • Flexible approach
- • 1 year history
- • Considers complex cases
Precise
- • Multiple calculation methods
- • Uses best for client
- • Good for mixed income
Halifax/Nationwide
- • High street options
- • Competitive rates
- • May use accounts instead
Broker recommendation
Calculate your contractor borrowing
Use our calculator to see your annual income under different lender approaches.
Try the calculator