Mortgage on a Zero Hour Contract

Podcast approved by The Openwork Partnership on 12/6/2024

How does my employment history impact my chances of getting a mortgage on a zero hour contract?

With a zero hour contract, most lenders want to see at least a 12 month track record of that type of work, because it’s less stable than an employed, full time role. You’ve got fewer rights and it is a riskier type of employment in the eyes of lenders.

Generally they want to see that you’ve been working in this way for at least 12 months – and with some lenders it’s as much as two years.

What other eligibility factors are important as a zero hour worker looking for a mortgage?

Again, it’s that track record in that type of employment. It’s often highly skilled, which can help a bit with lenders. We often work with IT contractors or medical doctors. Other eligibility requirements are generally the same as an employed applicant.

How do you download your credit reports when applying for a mortgage on a zero hour contract?

As for anyone else, credit reports can be obtained online. You can sign up for subscriptions with various different credit reporting agencies. The three big ones are Equifax, Experian and Transunion, and some companies like Checkmyfile, cover all three of those in one report.

Some lenders don’t necessarily check all the same credit agencies, either. Some will use Experian, some will use Equifax, so it’s a good idea to see absolutely everything.

Your broker can look at the credit file and be able to rule out specific lenders based on the details. We can target the lenders that are more likely to accept you.

To download a credit file you just sign up. There may be a monthly subscription fee, but there can sometimes be a 30-day free trial. It’s not too difficult to download a credit report these days.

It’s important, because some people have no idea that there’s something on their credit record. It’s useful to make sure that no one’s taken out a loan in your name and not paid it back, for instance.

What are the considerations for NHS mortgages on zero hour contracts?

Some lenders will have special dispensation for NHS workers. Bank work is a common form of zero hour contract. It can be done on top of regular overtime.

Lenders will accept bank work as a zero hours income, and some lenders take a special approach to NHS income. Most lenders will have internal scorecards and may boost these for NHS staff. But it’s generally the same criteria for everybody.

Which lenders offer mortgages for zero hour workers? Do lenders view zero hour contract workers as higher risk?

There is no doubt that lenders see zero hour contract workers as higher risk clients. You’ve got no safety net compared with an employed applicant.

Lenders have to make sure that not only can you afford the mortgage now, but you can afford it for the whole term. Zero hours contracts don’t necessarily have that continuity or future job security.

That said, a lot of the high street lenders will consider zero hours contractors – you won’t necessarily need a specialist lender. You should have some options from the high street, provided you have a provable track record. There are definitely options.

What impact does my profession or role have on my mortgage eligibility?

Different lenders have different ways of assessing applications. They’ll have internal scorecards that look at how long you’ve been employed; if you rent rather than live at home; your track history of maintaining credit; if you’re on the Voters Roll. Everything adds up to a score.

Being in a managerial role or a professional means you’re going to potentially have a higher score, because your employment is generally going to have a good salary and your job may well be in higher demand.

Accountants, doctors, lawyers… There are plenty of professions where you can get a good and consistent income. So depending on your profession, you might be scored favourably by lenders. But your role or your profession won’t have a massive effect on the type of mortgage you can get.

Is it possible to get a zero hour contract mortgage with bad credit?

As a zero hour contractor, you’re on the same standing as an employed person as long as you’ve got that track record.

But bad credit can have an effect. It will all depend on how bad the credit is. This is true for employed or self-employed people. If you’ve got a minor discrepancy, like a single missed payment in a couple of years, or a small, £50 default with a mobile phone company that you settled two years ago, that should be fine with most of the high street.

Any bigger hiccups like CCJs, defaults or debt management plans will crank up the risk factor for the lenders. As it gets riskier, the pool of lenders becomes smaller. Then, of course, as you’re reducing the pool, you’re reducing the number of lenders that will accept zero hour contractors.

That’s why it’s important to get hold of your credit report and have a broker look through, to establish which lenders may be most suitable

Don’t think that you’ve got bad credit just because you’ve missed a couple of payments. That’s not necessarily the case – those will just be seen as minor blips.

Can I get a Buy to Let mortgage on a zero hour contract?

Yes – you can get a Buy to Let mortgage with no income at all. Some lenders don’t set a minimum income.

Buy to Let is slightly different because they’ll see the property as self-financing. Lenders look at the rental income you’re going to be earning from property, and build in a ‘stress’ interest rate to take into account maintenance costs and rental voids. As long as your rent is a certain percentage above that stress figure, then the mortgage will fit.

So whatever your employment status is, you should be OK with a Buy to Let. It’s not bad to be in a zero hours contract – there are definitely options.

Can I take out an interest only mortgage as a zero hour contractor?

You’ll have the same standing as someone who’s employed, as long as you have that track history. You will also have the same issues in terms of considering your repayment vehicle – i.e. how you will repay that interest only mortgage.

Do you have a big pension pot to repay it with? Are you going to invest in ISAs, or stocks and shares? Or are you going to downsize in the future?

There are all those considerations for interest only. Again, it’s considered more risky and some lenders won’t get involved in it. Some set a minimum income of £75,000 for interest only.

As you add in those different risk factors, the pool of lenders becomes smaller and the options reduce.

How does the remortgaging process work if you’re on a zero hour contract ?

There aren’t many differences for a zero hours contractor unless, for example, you’ve taken out a fixed rate as an employed person, and then six months before the end you’ve moved to a zero hours contract.

The options are then going to be limited, because you haven’t got that track record. Moving to a different lender is going to be difficult, as that pool is going to be narrowed.

But don’t worry. You’re not going to get stuck on the standard variable rate. Most lenders will allow you to do a product transfer. You just choose another product from the lender’s current range and move on to that.

Generally, you don’t need to prove any income as long as it’s like for like. The lender has already assessed the risk of your mortgage and you’ve got a track record of paying it, so they will just move you on to a different rate.

Can I get a mortgage on a zero hour contract if I’m a First Time Buyer?

Yes, there’s no difference, really. First Time Buyers are riskier in the eyes of the lenders as they’ve got no track history of maintaining a mortgage. So that risk factor is a little higher.

Once we add on the zero hour contract, some lenders drop off as that’s too much risk. But there are always lenders that will be happy, especially if you’ve got that track history. There should be plenty of high street options for First Time Buyers on zero hours contracts.

There are a lot of myths around needing three months’ pay slips before you’re even considered. There are lenders that would consider a contract that is due to start in two months time, for instance.

There’s generally an option for most scenarios. I would suggest getting hold of a good broker. We know our stuff and will know which lenders are going to fit your criteria. After having a thorough chat, we’ll talk through your options.

What else do we need to know about mortgages for zero hours contractors?

If you already have a mortgage, just bear in mind the timing when you’re considering moving jobs or you’re considering going on to a zero hours contract. You might be considering starting a limited company.

Just think about whether you will need to do any borrowing soon. Will you need to prove your income to a lender? Bear in mind the proof you need. If you started a limited company two months ago and you’re looking to get a mortgage in three months, you’re just not going to have a track history of employment that a lender will accept.

So consider those timings and what you need to to prove your income going forward.

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY. 

Approved by The Openwork Partnership on 12/6/2024