For limited company contractors, whether a lender uses day-rate annualisation or SA302 declared income can swing maximum mortgage borrowing by £200,000–£400,000 even for the same person and earnings, so this guide breaks down both assessment methods, compares them with real figures, and shows when each approach actually works in your favour — since day rate wins for most tax-efficient contractors, but SA302 has its own edge cases worth knowing.
Day rate annualisation converts the contract rate to annual income directly: rate × 5 days × 46 weeks at most contractor-friendly lenders, Halifax included. A £600 rate becomes £138,000 of assessable income — regardless of what the company pays its director, what the accounts show, or whether accounts exist at all.
The method's power is precisely that independence from drawings: the tax-efficient director paying themselves £12,570 plus modest dividends is measured on the contract their company actually wins, not the salary their accountant optimised. Documentation is the contract, work history and bank statements — no SA302s, no accounts at most lenders.
A contractor on £600 per day, drawing £12,570 salary and £42,000 dividends — same earnings, two very different mortgage outcomes.
£138,000 assessed — up to £621,000 maximum borrowing at 4.5 times income.
£54,570 assessed — just £245,565 maximum. A gap of £375,435 on identical earnings.
SA302 assessment reads the self-assessment tax calculation: salary plus dividends as declared, usually averaged over two years. It measures what you took, not what you earned — which for a deliberately tax-efficient contractor systematically understates earning capacity, and adds a two-year history requirement the day rate route does not carry.
The variant routes matter: some lenders use the latest year rather than the average (rewarding growth), and some assess salary plus net profit (recognising retained earnings) — both can substantially improve on the basic dividend calculation while staying on the accounts side of the fork.
Three genuine cases. High consistent drawers: the director taking £130,000+ annually in salary and dividends can match or beat the day rate figure on SA302s, and may then access sharper pricing at accounts-led lenders like HSBC. Strong net profit retainers: salary-plus-net-profit assessment can rival day rate figures where company profitability is high and the lender recognises it. Non-contract income mixes: directors whose company income is not a single contract — products, multiple clients, employees — may have no clean day rate to annualise, making the accounts the honest basis.
We run both calculations on every contractor-director case as standard, because the winning route is a property of your specific numbers, not a rule of thumb.
The route decision and the lender decision are the same decision: day-rate lenders and accounts-led lenders are largely different shortlists, with different documentation and different pricing personalities. The comparison is run as a whole — assessed income × multiple × pricing × criteria fit — not method-first.
The deeper treatments live on our day rate contractors page (the calculation in full) and the ltd company director page (all four assessment routes compared). This guide's one-line summary: know both your numbers before anyone applies anywhere.
Frequently asked questions