Introduction: The problem with Zero-Hour contracts
Zero-hour contracts can offer the flexibility many crave, but when it comes to securing a mortgage, they often come with their own set of hurdles. The financial landscape is evolving, and so are mortgage providers, with more beginning to recognize the nuances of modern employment. In this article, we delve into the intricacies of obtaining a mortgage on a zero-hour contract—covering lender criteria, how to make your case more compelling, and the pros and cons of going it alone or seeking broker assistance.
Zero-Hour Contract Mortgages: What Are They?
Mortgages designed for zero-hour contract workers differ from standard mortgages primarily in their affordability assessments. For those with traditional full-time employment, income stability is easier to prove, simplifying the lender’s task. But zero-hour contracts introduce volatility in earnings, requiring lenders to examine alternative indicators of financial reliability.
Criteria for Eligibility
When offering a mortgage to those on a zero-hour contractor, the lender may evaluate the following:
- Consistency of Earnings: Periods of consistent earnings over the past 12 to 36 months. Generally lenders wish to see at least a 24 month history of consistent employment without any gaps. They may take averages over a shorter period, but any missing weeks or months may prove challenging as this indicates there may be future periods where there’s no income. Some lenders will also only accept a percentage of the income submitted to give themselves some protection in case of periods where you are not earning. Lenders will often verify this by looking at the total income across several past P60’s and comparing that to the income quoted on recent payslips. As a result if you have increased the hours over the past few years you might not be able to rely on that uplift with all applicable lenders.
- Work Sector: Certain sectors like healthcare, IT, and education may offer better odds. Some lenders only accept these contracts from NHS locum’s or bank nurses for instance, where these contracts are common but generally better paid, or where employers are more regulated.
- Profession and Skills: Specialized skills could enhance your application. Similarly to the above point, having a defined and in demand skill may improve the likelihood of a lender accepting an application.
There are approximately 80 lenders who have a policy on zero hours contracts, of those only around twelve will not accept them in any way, very few without any conditions at all.
As a result its crucial to speak to a broker to understand the minefield that is zero contract mortgages. Here at AALTO Mortgages we have an in depth understanding of each lenders policy and can match you to the right lender and provide you the best options available to you.
Additional Considerations: What Else Matters?
Interest-Only Plans
While interest-only mortgages have stricter criteria, zero-hour contractors aren’t necessarily excluded. Success often depends on your overall financial picture and the quality of your repayment plan.
Age-Related Factors
Younger and older borrowers may face age-related restrictions. Some lenders have age caps, but these are not universally applied. A strong application can sometimes override age-based criteria.
Required Deposit: How Much Is Enough?
When you’re on a zero hour contract, the required deposit can differ from those in more traditional employment settings. While the exact amount varies by lender, you’ll typically need to provide a larger deposit.
Credit Scores and Their Impact
A less-than-stellar credit score isn’t an insurmountable hurdle, but it does complicate matters. Lenders may offer you higher interest rates or impose more restrictive conditions.
Help to Buy Schemes: Yay or Nay?
Contrary to popular belief, Help to Buy options are indeed accessible for those on zero hour contracts, although the exact prerequisites will differ depending on the lender.
Investment Mortgages: The Buy to Let Option
If you’re considering property investment, a Buy to Let mortgage isn’t out of the question. However, be prepared for stricter conditions and a heftier down payment.
