How to Secure a Mortgage on a Zero-Hour Contract
At Kerr & Watson, we understand that securing a mortgage can be challenging, especially for those on zero-hour contracts. Despite the flexibility and freedom that zero-hour contracts offer, they can complicate your ability to find a willing lender. However, with the right guidance and approach, obtaining a mortgage is entirely possible.
What is a Zero-Hour Contract?
A zero-hour contract is for staff members that do not have full-time employment contracts but work under zero-hour arrangements. These contracts do not guarantee a minimum number of working hours, leading to variable income streams, which traditional lenders might find challenging to assess. Unlike standard mortgages that typically rely on stable annual salaries, zero-hour contract mortgages require lenders to consider other factors to evaluate affordability.
Why is it Difficult to Get a Mortgage on a Zero-Hour Contract?
Lenders typically perceive zero-hour contract workers as high-risk borrowers due to the unpredictable nature of their income. The primary concerns include:
Income Variability: Lenders find it challenging to assess affordability because of fluctuating monthly earnings.
Employment Gaps: Periods without work can signal instability, making lenders wary.
Future Income Uncertainty: Without guaranteed hours, predicting future income is difficult.
Improving Your Mortgage Prospects Key Factors Lenders Consider
Employment History: A consistent work history in the same sector or with the same employer can mitigate concerns about income stability. Some lenders may require at least 12 months with the same employer.
Profession and Role: Highly skilled professionals in sectors like healthcare, education, or accountancy are viewed more favorably, as these roles suggest ongoing demand and financial stability.
Income Documentation: Providing comprehensive evidence of your income is crucial. Lenders often require up to 12 months of payslips, bank statements, and previous P60s to establish average earnings. Find out what to bring to your mortgage appointment.
Find out Your Options
Steps to Secure a Mortgage as a Zero-Hour Contractor
Demonstrate Income Stability: Collect and present detailed financial documents. These should include bank statements, payslips, and tax returns that clearly show your earnings over the past 12 to 36 months.
Build a Strong Credit Profile: Maintain a good credit score by managing debts effectively and avoiding new credit applications in the months leading up to your mortgage application.
Save a Larger Deposit: A higher deposit reduces the loan-to-value (LTV) ratio, making you a less risky borrower. While standard deposits range from 5% to 10%, aiming for 15% to 20% may improve your chances depending on the lender’s rules at the time.
Consult a Specialist Broker: At Kerr & Watson, our experienced brokers can identify lenders who are more flexible with zero-hour contracts, ensuring you get the best possible terms.
Mortgage Options and Strategies
Income Assessment Methods
Different lenders have varying criteria for assessing income:
Average Income Calculation: Some lenders will average your earnings over the past 12 months, while others might look at two to three years of income data.
Recent Earnings: Some lenders may consider your last 12 months’ consistent earnings, whereas another lender might require your latest P60 along with three months of regular payslips.
Loan-to-Value Ratios
High LTV Mortgages: While it’s possible to secure mortgages with up to 95% LTV, zero-hour contract workers might face stricter requirements. Larger deposits (e.g., 20% or more) often unlock better rates and more lender options. Professional advice should be taken here to understand what is available for your specific circumstances.
Mortgage Types
Standard Residential Mortgages: Many lenders now offer standard residential mortgages to zero-hour contractors, assessing affordability based on averaged earnings and employment stability.
Interest-Only Mortgages: These require a solid repayment plan. Lenders may be cautious, but this may be available depending on the full circumstances. Your adviser will be able to guide you here.
Is it More Expensive to Get a Mortgage as a Zero-Hour Contractor?
Not necessarily. While some lenders may charge higher rates due to perceived risk, high street lenders often provide competitive rates for zero-hour contractors that meet their criteria. Other factors, such as deposit size and credit history, also influence mortgage costs.
Can I Get a Buy-to-Let Mortgage?
Buy-to-let mortgages might be easier to obtain as eligibility often depends on the projected rental income rather than personal income. Experienced landlords with zero-hour contracts may find more flexible lending policies.
Are Joint Mortgages an Option?
Absolutely. Applying for a joint mortgage can strengthen your application, especially if the other applicant has a stable income and good credit history. Lenders will assess the combined income and affordability, you can also
What About Bad Credit?
Bad credit adds another layer of risk, but specialist bad credit mortgage providers exist. The impact on your application depends on the severity and recency of credit issues, along with other factors like job stability and deposit size. You should speak with a mortgage adviser in that situation, who can understand your contract and credit file to determine the best options for you.
Working with a Broker
Engaging a specialist broker like Kerr & Watson can significantly improve your chances of securing a mortgage. We have access to a wide range of lenders and can match you with those best suited to your unique circumstances.
At Kerr & Watson, we are committed to helping zero-hour contractors find the most suitable mortgage. Contact us today for a free, no-obligation consultation.
