Fixed Term Employment Contract
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Fixed Term Employment Contract
Alan Lawes and Michael Siviter talk us through getting a mortgage on a fixed term employment contract.
How does a mortgage on a fixed term contract differ from a standard mortgage?
In theory, it’s not too dissimilar. It’s really about how, as a client, you prove your income.
Lenders are interested in your long term affordability, to repay the mortgage over a number of years. When you’re on a fixed term contract, you’ve got an end date with your current employment, whereas if you’re employed permanently, it’s obviously ongoing.
Because of that, lenders will ask a few more questions around the history of your work and past contracts. They are interested in your experience and the type of role you’re doing, and what the future looks like.
Many will want you to have been contracting for 12 months continuously. You might need a minimum of six months left on your existing contract. Usually you need to stay in the same field of work, to show you have the experience that will help you secure a new contract when the current one ends.
What documentation do I need as proof of income when applying for a mortgage with a fixed term employment contract?
Most lenders will ask for ID, bank statements and payslips. They will typically ask for a copy of the current contract for that fixed term. They want to know what that start and end date is.
They might also ask for documents from prior employment, such as a P60 from a previous role and payslips from the last job that you were in, if you’ve gone from fixed term to fixed term.
Are there any specific income-proof requirements for self-employed applicants?
If the lender classes you as self-employed, they’ll ask to see the last couple of years’ SA302 and tax review forms. Some lenders might want to have copies of the last couple of years’ accounts, or even an accountant’s certificate, to confirm your earnings.
In some cases, they might want a projection for the coming year to give them confidence that you’re still heading in the right direction and likely to receive the same amount of money.
They treat you the same as any other self-employed person, in terms of the documents they’d want to see.
What costs are associated with getting professional advice for a fixed term contract mortgage?
We don’t typically charge any upfront fees for the initial advice and recommendations that we provide at YellowBrick Mortgages. Just finding out what your options are won’t require any costs upfront. We’re happy to help you look at what you can do on a fixed term basis, at no charge.
How does the length of your current contract impact your eligibility for a fixed term contract mortgage?
This is one of the trickier things to work out – a lot of the lenders have similar views, but some do vary slightly. As a general rule, most of them like you to have contracted in the same way for 12 continuous months.
A lot of them will also want you to have a period of time left on your existing contract, perhaps six months. It’s helpful to have the contract potentially renewed with your current client – it just shows that commitment to your work. You do have to have a fair amount of experience in that type of work.
Some lenders are more generous, some are stricter, but as a general rule that’s what we’re looking at when exploring options for you.
How can I improve my chances of getting a mortgage on a fixed term contract?
There’s not really a great deal you can do yourself, because your contract is your contract. It’s rare that employers will change anything to help you get a mortgage.
It’s often quite helpful to have been on that new contract for six months or have at least six months remaining on it. That will help with lenders’ attitude towards lending or not. It’s all about timing and then finding that right lender.
Are there any additional steps I need to take when applying for a mortgage on a fixed term employment contract?
Be mindful that timing is important when you’re looking at your mortgage options – particularly where you currently are in that contract period.
Trying to get as long a contract as possible can help, but it’s not often something you can control. Generally we need to demonstrate to the lender that your income is going to be maintained for the foreseeable future.
What deposit do you need for a fixed term contract mortgage?
Like anything, the more you can put down, the better. A lot of lenders like you to have a 10% deposit. I did actually get a mortgage agreed just last month for a client who’s on a fixed term contract with a 5% deposit. So 5% is the minimum, but of course, the more the better.
Is it possible to get a remortgage on a fixed-term contract?
Yes, definitely. Similar rules apply around the length of contracts etc. Sometimes your circumstances can change between you buying the house and getting your new mortgage. You may have been employed, for example, and then switched to contracting over that time..
You might fall outside of some of these rules around 12 months’ continuous contracting and six months remaining. But there’s always an option to get a new deal with your current lender. They don’t do new affordability checks, because you’re already a customer with them, so they’re happy to offer you a new deal.
It could be that you’ve started a family and your income has dropped because one of you has gone part-time, or other changes.
How would someone go about talking to a lender regarding their mortgage application?
I’ve seen it happen so many times – a customer has gone straight to their bank directly and said the wrong thing. They’ve told the lender something incorrect that means they can’t get a mortgage.
Coming to a broker like ourselves is the best idea. We know how to position situations like this and what to say to the lenders. We will give them the information needed to get a mortgage – without just going to one particular lender.
We can go to lots of different lenders and speak to all of them individually to see who can and can’t help.
If you go and speak to your bank, they’ll want to book an appointment. That will take two or three hours each time – whereas we can look at dozens of lenders in one day. We can save a lot of time.
What factors determine how much you can borrow on a fixed term contract?
Lenders typically only use 46 weeks pay versus the full 52 – to allow for your time off and holidays. That can potentially lower your borrowing, but the affordability model is still the same for anybody. They’ll apply a unique calculator to see how much you could borrow.
How can I increase my chances of getting a mortgage on a fixed term employment contract?
I’d recommend you speak to a broker like ourselves. We can give you the best chance of getting a mortgage that suits your situation. Speaking to a broker is definitely the best thing that you can do.
How long should you be in your current job or agency before applying for a mortgage?
The rule of thumb is 12 months. A few lenders might be a little bit more generous, depending on your circumstances and how long you’ve been in the industry.
We’d always be happy to speak to you at any stage in your mortgage planning. If you are thinking about doing something, but it might be a little way off, speak to someone sooner rather than later to help you plan.
If you’ve only been contracting for six months, we can have a chat around that to give you guidance for your future plans. We’ll steer you in the right direction.
How do you go about getting a mortgage when you’re on a fixed term contract?
Come to a broker and explain your situation. We can then confirm what you can and can’t do, how much you can borrow, then you can start looking for that property. That’s pretty much it – start with a broker like us.
For fixed term contractors it is a bit more complicated, as lenders approach it in different ways. A broker will use their knowledge and experience to research everything for you and get you in the best place possible for your mortgage.
We can do it all for you, present recommendations accordingly, and hopefully you’ll be happy with what we find.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up with your mortgage repayments.
Approved by The Openwork Partnership on 31/08/2023.
Speak To An Expert
Our highly experienced Advisers are ready to help you with either buying or remortgaging a home, protecting your property and lifestyle along with saving you time and effort, ensuring you have a competitive deal right for you.
Fixed Term Employment Contract (Part 2)
We continue the conversation on getting a mortgage on a fixed term employment contract with Daniel Shaw and James Blackhurst.
Podcast approved by The Openwork Partnership on 21/12/2023.
How do lenders view fixed term employment contracts when applying for a mortgage?
Lenders will view you differently from people on permanent contracts when assessing a mortgage application. There are a number of factors they might consider – for example, job stability. Can the applicant demonstrate a track record?Contract length is also important, whether it’s a short term contract and if there’s a renewal option. Income consistency is another factor – they will look at how much your income varies month by month. All these factors are taken into consideration.
Do you need to have an existing contractor extension to be approved for a fixed term contract mortgage?
In most cases, you don’t. If you have a track record in that line of work then that’s generally enough. If you’re coming to the end of your contract in the next month, you can also have a break for a certain amount of time before you pick up another contract. The lender will be okay with that. We don’t need an existing contract extension.
What eligibility criteria do lenders take into consideration when approving a fixed term contract mortgage?
It’s similar to a previous question – it’s about that job stability, being able to demonstrate a track record, the length of contract and consistency of income.
What steps should you take when preparing for a mortgage application on a fixed term contract?
Documentation is always key. Lenders like to know the ins and outs of everything about your contract. A copy of that is always helpful. Obviously, make sure that your credit file is up-to-date and review your whole budget, really.
Lenders work the affordability out in different ways. So having information ready for your broker is a great help.
How long does the mortgage application process take for those on fixed term employment contracts?
They’re not usually underwritten differently to somebody on a permanent contract. There are always certain things an underwriter is looking for and they’ll take into consideration some of the things we’ve mentioned already. It mainly comes down to the lender’s policies, their financial situation and also the complexity of the transaction.
What is considered unacceptable employment income when applying for a mortgage?
Some lenders won’t allow zero hour contracts, and some lenders don’t like you being paid in cash. Other things can be unidentifiable income. If there are certain things on your payslip, some lenders can’t accept them – but lenders are all different.
Generally with contractors they’ll do a calculation over 46 weeks of the year to get your annual income. That might reduce your income slightly, but you can generally find a lender that would work for your situation.
Is there a difference in how much temporary workers can borrow compared to permanent employees? What are the options for temporary workers who need a mortgage?
They’ll face some unique challenges, similar to those on a fixed term contract, when applying for a mortgage compared to permanent employees. Lenders will typically be looking at income stability and your ability to repay the loan.
Again, being able to demonstrate a track record and contract renewal is always helpful in these situations.
What are some of the common issues faced by temporary workers while securing their mortgage?
You need to give the lender peace of mind that this mortgage is going to be affordable and will be repaid. No lender would want to give a mortgage to somebody who couldn’t afford it.
Job stability is always key. Contracts do finish and end, and lenders are aware of that. As long as you’ve got a track record in that industry, that generally improves your chances.
What is the impact of having a proven track record when applying for a mortgage on a fixed term contract?
It simply strengthens the applicant’s position – you’re able to demonstrate to the lender that you consistently get more work. It just gives that lender the peace of mind that once your contract finishes, the likelihood is you’ll be able to get another one. It improves your chances.
Can people with indefinite leave to remain in the UK get a fixed term contract mortgage?
Yes. If they’ve got leave to remain here and they’re on a contract, they can definitely get a mortgage.
What are some of the challenges faced by individuals on fixed term contracts when attempting to get a mortgage?
There are similar themes. It’s a challenge if you can’t demonstrate a track record, typical contract length and renewals. Documentation is crucial to evidence that track record.
If you’ve not kept hold of your previous contracts, it could mean you can’t prove those things to the mortgage provider.
Is it possible to get a mortgage if you’ve just started a new job on a fixed term contract?
It’s all down to the lender’s criteria. Some lenders will want you to have been in a job for a certain amount of time – say three months – or to have been in that line of business before.
Some will want 12 months in that job. It all depends on how good your broker is, really, because they should be able to find that mortgage for you. It’s down to the criteria, but some lenders are really flexible in this, and some aren’t.
How do you calculate the maximum borrowing amounts for someone on a fixed town contract?
It varies with every lender. My advice is to get in touch with an experienced mortgage broker. We’ll take into consideration your unique position and calculate your income based on specific lenders’ criteria. We’ll place your mortgage with a suitable provider once we’ve done our research.
How does classifying an employment contract as fixed term impact one’s ability to secure a mortgage?
If you’re a CIS contractor, like a builder, you generally do that for a long period of time. So some lenders will class you as employed rather than self-employed.
You have 20% deductions from your payslips – if you’ve got one of those types of contracts and you’ve done it for a long period of time, mortgage providers are more relaxed.
What tips would you give to someone looking to secure a mortgage whilst on a fixed term contract?
You’ve got to first of all look at your own financial situation. Look at your incomings and outgoings to determine whether it’s affordable or not, to start with. You could also check your credit report to make sure you’ve got a good credit score.
It’s always helpful to pay down any outstanding debts as much as you possibly can, but whilst doing that you need to be saving towards a deposit. Also, get all your documentation together: dig out those contracts from your previous roles.
Your home may be repossessed if you do not keep up with your mortgage repayments.
Approved by The Openwork Partnership on 21/12/2023.
Speak To An Expert
Our highly experienced Advisers are ready to help you with either buying or remortgaging a home, protecting your property and lifestyle along with saving you time and effort, ensuring you have a competitive deal right for you.
Part 3 – Fixed Term Employment Contract
Alison Davis and Carla Corbisiero answer some frequently asked questions about getting a mortgage with a fixed term employment contract.
Podcast approved by The Openwork Partnership on 02/01/2024.
What kind of interest rates can I expect on a mortgage if I have a fixed term employment contract?
There are actually no allocated mortgage products specifically for people on fixed term contracts. We would basically consider the most cost-effective option based upon your individual circumstances.
For example, if you’ve got a really big deposit, that’s going to drive a lower interest rate. If you’ve got a small deposit, you’re going to pay a higher interest rate.
Rates are only available on the day of the application, so we would be looking at the general product range available. It would just involve a slightly different calculation with the lender if it’s a fixed term contract.
Are there special mortgages for contractors?
Contractors are recognised to have fluctuating income from multiple sources. It’s not a fixed source, unlike an employed person who knows what they’re getting paid every month. It’s set for as long as they’re in that job.
With a contractor that isn’t the case. You will be considered based on the contract length, contract rate and overall financial stability. Having a good, steady income on a contract with a good history usually means you won’t have any issues with lenders.
If you’ve only just started a contract, we might need to look at some more specialised lenders, but as a general rule of thumb if you’ve got a good contracting history, there shouldn’t be any problem finding a mortgage.
Will gaps in work history negatively impact one’s chances of getting a mortgage on a fixed term contract?
It depends. We have lots of lenders and they all have different criteria.
Generally speaking, if you’ve got more than six months to run on the contract, you need to have been employed for a minimum of 12 months. If the contract has less than six months to run, you must have been employed for two years within the same line of work.
Understanding your needs and preferences will allow us to place you with the right lender based on their criteria. They do like to see consistency and a history of contracts in the past and future, to feel that it’s sustainable.
Can getting a guarantor help with obtaining a mortgage on a fixed term contract?
A guarantor can potentially help to get someone a mortgage on a fixed term contract. That would give a lender peace of mind that the contractor would still be able to maintain their monthly payments if the fixed term contract ended and another wasn’t found immediately.
For instance, if they have an employment gap with no income coming in, whoever’s guaranteeing the mortgage – mum or dad, perhaps – can step in and make the monthly payments. So yes, it does give a peace of mind for a lender.
What kinds of things can affect the amount you can borrow on a fixed term contract?
Certain lenders will base the maximum borrowing on a reduced year calculation. For example, if you’re employed we then calculate your borrowing based upon say a £40,000 yearly salary.
If you have a fixed term contract worth £40,000, lenders will reduce it to 46 weeks’ earnings. That will give us a lower level of income which affects the maximum borrowing available.
What are some things to keep in mind when applying for a mortgage if this is your first contracting job?
Income stability is very important to lenders. They like to see job security, and if it’s your first contract, you’ve got no job history. It won’t disqualify you from a mortgage, but it would be looked at during the underwriting process.
That makes it really important to have other things in place. If you’ve got a good credit score your chances will be a lot better than if you’ve got no credit score or a bad score. Make sure you’re on the voter’s roll and you’re paying back credit on time. That’s really important.
If you’ve got a low credit score but a high Loan to Value – so a very small deposit – there’s something called the Help to Buy guarantee. Lenders are able to get a guarantee so they can actually lend to you even if you don’t quite meet the 95% requirements or the lending is not quite there for you. It gives a little bit of extra help for First Time Buyers.
Can you change jobs after being approved for a mortgage on a fixed term contract?
It would all depend on the circumstances and the job change. As long as the affordability has been met and it still meets the lender’s criteria, it should be fine.
If, for example, your new contract is on a lower income, obviously that’s going to impact the borrowing requested. Also if the new contract didn’t meet certain requirements from the lender, that will also have an impact. Again, it all needs to be assessed on an individual basis, but it’s something that can be reviewed and considered.
How do brokers that specialise in fixed term contract mortgages differ from traditional brokers?
As a mortgage broker that has helped clients with many fixed term contract mortgages, we are very able to place you with the correct lenders. We have good criteria information that helps us decide where to place you, depending on what lenders are looking for.
Our technology is so good that we can get that information immediately, even though things are changing daily. We can’t make any assumptions, so when we see a fixed-term contract client, we’re going to research the options on that day.
Then, when we marry it up with the applicant, they get the most cost-effective option. It’s all about understanding the customer and being able to research their specific situation with the lenders we have.
Are there any special mortgage products for those on fixed term employment contracts?
There are no specific products. We would just look at the customer’s individual preferences and circumstances. What’s right for one applicant might not be right for another. We can look across the board at the rates and products that are available on the day.
Can you share more about the different types of property surveys in relation to fixed term employment contracts?
The different types of property surveys will not be impacted by whether the clients are on a fixed term contract or are employed or self-employed. Property surveys won’t have any impact on that at all because they are completely separate. Surveys are purely about the property.
There are three main types of property survey, starting with the basic valuation for mortgage purposes. This is just a valuation to say that the house is worth a certain amount and that it’s standing.
The second one is a Home Buyers Survey which is a little bit more in depth. The valuer will go around looking at the property. Then there’s a full structural survey. This is far more detailed – they lift up carpets and test walls with damp meters. It’s a more intrusive type of survey for the property.
There are also more bespoke surveys. Carla has just done a RICS survey for somebody who was looking to remortgage their property. It previously had a Help to Buy loan on it, so they had to get a RICS survey to understand how much would need to be paid back.
There are all sorts – boundary surveys, location surveys, snagging surveys… you can go deeper and deeper.
It’s really important to understand that those surveys provide you with a level of security. They all come with different costs. With a mortgage purpose survey, potentially some lenders will give it to you for free, where others will charge.
It’s about understanding whether a property needs a more in-depth survey and for you to understand what information will be within those reports and if that would be relevant to you. Has the property just been built, where you’ve got the guarantees, or is it a cottage built in 1800? It all depends on the specific circumstances.
How can individuals on low incomes improve their chances of getting a mortgage on a fixed term contract?
The most important thing is your credit file. Download the app, check it regularly, make sure you’re paying everything on time. Make sure your address history is up to date and you’re registered on the voter’s roll.
If you have no credit at all, it could help to get a credit card and put your fuel or supermarket shopping on it and pay it off every single month. You get 56 days interest free on a credit card. That will allow your credit file to record how you maintain your commitments.
When a lender reviews your credit file they will understand how you repay – that helps them confirm whether they could lend to you or not.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
Approved by The Openwork Partnership on 02/01/2024.
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