Can I get a mortgage on a fixed term contract?

Posted 16 October 2017 by Nick Parkhouse

Are you a contractor wanting to get on the property ladder? Find out what the requirements are in our comprehensive guide

Fixed term contracts allow employers to fill specific gaps in their workforce. They can be used to hire an expert for a specific project, to cover maternity or sick leave, or if a business needs specialist support for a fixed period of time.

If you’re on a fixed term contract, you may be concerned that you won’t be able to get a mortgage. Our guide looks at how you can get a mortgage on a fixed term contract, and what factors you need to take into account.

Can I get a mortgage on a fixed term contract?

If you are employed on a fixed term contract it is possible for you to get a mortgage.

You may find it more difficult than if you were in permanent employment, but there are many lenders in the marketplace who will lend to people who are contracting.

Just as if you were self-employed, getting a mortgage is about proving your earnings and the stability of your employment. A lender wants to see that you can afford the mortgage now and, importantly, that you will be able to afford it in the future.

Self-employed and contractors – how do they go about getting a mortgage?

Getting a mortgage as a contractor can be tricky. The definition of ‘contracting’ can vary from lender to lender and each bank or building society will have their own specific criteria for contractors and self-employed applicants.

The policy that lenders adopt will be based on factors including:

  • Whether you’re an employed person working on a fixed term contract or you’re self-employed and working for one main company
  • How long you have been contracting
  • How long you have worked in your industry
  • Whether you have been working on a contract basis for a long time
  • The type of industry that you are in
  • How long is left on your contract and whether it is likely to be renewed

If you’re a self-employed contractor then you are registered as self-employed with HMRC and you’ll pay your own tax and National Insurance contributions. You may be contracting for one or more companies.

In this case, lenders will generally need to see a history of at least 12 months’ work and your borrowing potential will be based on the figures that you declare as your net profit (if you’re a sole trader or a partnership) or your salary and dividend (if you are a limited company director).

Some lenders will look more favourably on your application if you’re a high earner (perhaps in a professional role) or you work in IT where contracting is common.

Can I get a mortgage if I am on a zero hours contract?

According to Office for National Statistics in 2017, more than 880,000 workers in the UK were on ‘zero hour contracts’.

As these contracts do not guarantee work, many lenders decline mortgage applications from people on zero hours contracts. Considering that lenders have to prove that a mortgage is affordable, many will not entertain an application because there is little certainty that the borrower will be able to earn the income to make their repayments every month.

However, there are some specialist lenders who will consider an application if you’re on a zero hours contract. If you have a track record of 12 months’ earnings then a lender may consider you, as long as the income is sustainable and your work is likely to continue.

What are the extra requirements a lender can have if you are on a fixed term contract?

Each lender has different criteria for contractors and self-employed applications. In general:

  • You will have to have completed 12-24 months on a fixed term contract
  • Your contract may have been renewed at least once
  • There may have to be a certain period remaining on your current contract
  • You may need a continuous history in your industry of 12-24 months

What other factors could play a role in the lender decision?

As with other mortgage applications, there are a range of factors that will also affect a lender’s decision:

  • Your credit score – a lender will carry out a credit check and so you’ll need to pass a lender’s credit score
  • Your income and outgoings – you will need to prove your income in the normal ways (through tax returns, payslips etc.). A lender will have to confirm that your mortgage is affordable and so they will take any regular commitments into account
  • Your ID – you will have to prove your identity and your address

Borrowing as a contractor can be a minefield, so it can pay to take specialist advice from an independent mortgage broker. They have knowledge of the market and are likely to know which lenders will consider your application.

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