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Zero Hour Contract Mortgages

By Kev TilleyCeMAP

Last Reviewed: 16th December 2021

If you’re looking to secure a mortgage on a zero hour contract, it can be more difficult but isn’t impossible.

Over the past few years, the upward trend in zero-hour contracts has caused lenders to rethink the criteria required for buyers needing a mortgage.

Obtaining a mortgage on a zero-hour contract use to be more difficult because lenders tended to view this form of employment as unstable.

For example, no work equates to no pay, which means an unpaid mortgage putting the lender at risk.

However, recently, lenders have noticed the increase in this type of employment, meaning they have had to change their game plan to remain in the mortgage market.

Whilst most lenders prefer buyers to be in full-time employment, some lenders offer mortgages to those on zero-hour contracts, thus opening the proverbial home-buying door to those who may otherwise have found it firmly shut.

However, approaching the application with the correct information may lead to the approval of a mortgage and, subsequently, the purchase of your ‘forever home!

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Zero-hour contract mortgage explained

Firstly, a zero-hour contract can be broadly defined as an employment contract that allows the employer to hire staff without any guarantee of work. Often the work is sporadic, offered at short notice, and your salary depends on the hours or shifts you work.

This causes uncertainty with lenders who provide standard mortgages as they require regular payments of set amounts which can easily be unpaid should your salary fluctuate each month.

However, a zero-hour contract mortgage is designed for those who have this type of employment contract.

Lenders who offer this type of mortgage understand that some employers don’t provide the stability of a full-time contract to their employees.

In addition, just because you are on a zero-hour contract does not mean you don’t earn the same or more than your full-time contract counterparts.

Can you get a mortgage on a zero-hour contract?

Yes, it’s possible, however, a zero-hour contract immediately labels you as higher risk, since lenders prefer more stable forms of income. However, the good news is that all lenders are different and some lenders will accept applications from higher risk applicants, including those on zero hour contracts.

Such lenders can be difficult to locate and its likely that your application will be rejected or you will be offered a mortgage with an extremely high interest rate, the key is to talk to a mortgage broker who will be able to do a full search of the market and find you the best possible lenders.

How do mortgage lenders view zero hour contracts?

The reality is that lenders will likely view an application from an individual on a zero hour contract less favourably than an individual on a full time contract.

Why? Your income is not guaranteed and so you will be considered higher risk and more likely to miss mortgage payments in the future.

This will typically mean lenders will reject your application, offer a higher interest rate or expect you to put down a larger deposit.

What criteria will lenders assess?

When considering a mortgage application from an individual on a zero hour contract, lenders will look at the following criteria:

Employment History

If you have been working for the same employer or in the same industry for twelve months, it demonstrates that your employment is secure. As a result, lenders often use this as their starting point.

In contrast, if your employment history has gaps or perhaps you have started a new job, it may cause lenders to feel that your employment isn’t quite as stable as they would like.

Earnings

Demonstrating that your income is sufficient to repay the mortgage will increase the confidence of lenders considering your mortgage application.

Zero-hour contracts don’t automatically mean you earn less than is required. Moreover, showing you have savings put away each month provides your application with additional ‘brownie points.’

Job role & industry

Your job role or occupation can show lenders the skills or qualifications you hold; this demonstrates the likelihood of you finding work easily to repay the mortgage.

It’s important to note that some lenders will never accept an application from an individual on a zero hours contract, however, some will as long as you can demonstrate a stable history of working in these types of roles.

If you have already been declined and you are on a zero hours contract, don’t give up quite yet, as our mortgage brokers will be more than happy to help you find a lender and offer assistance with completing the application.

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Deposit requirements for zero-hour contract mortgages

Figuring out the deposit you require can be quite tricky as it depends mainly on the lender and your circumstances.

In some cases this can be as little as a 5% deposit, but this is only usually possible via the help to buy scheme. In general, the standard amount needed is around 10%, but as much as 15% for individuals with a poor credit history.

It’s worth noting that the higher the deposit you can offer, the more favorable this looks on your application.

It stands to reason the higher the deposit, the less risk involved for the lender, which is what you want to show when working on a zero-hour contract.

To better understand the amount, you will require it’s best to speak to a mortgage advisor who can assess your circumstances and situation.

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Zero hour contract mortgage lenders

Deciding which type of lender is best for you depends largely on the type of mortgage you require.

For example, a buy to let mortgage is very different from a regular mortgage, and those with credit issues may need to seek help and advice from an adverse credit lender.

Choosing the right lender for you is vital to avoid wasting your time, money and possibly missing out on purchasing your chosen home. Let’s take a look at lenders suited for zero-hour contract mortgages.

Specialist lenders for bad credit

Having a bad credit score doesn’t automatically cross you off the mortgage list. However, it will make the process more challenging. While specialist lenders may help, this will depend on the credit issues you are facing.

It’s also worth noting that a bad credit score coupled with a zero-hour contract may provide additional challenges. Often lenders will refuse mortgage applications based on the bad credit without considering the type of employment contract you hold.

Again, specialist lenders are there to help in this type of situation. However, the rates may not be as good compared to regular mortgages, and the fees may be higher.

Buy to let mortgages for zero-hour contract workers

Can you get a buy to let mortgage on a zero hour contract? It may still be possible, but in general, it’s going to be more difficult.

Lenders commonly require to to provide proof of a minimum personal income through either employment or self-employment and assess this your accounts.

If this is your first buy to let property application, the criteria is much similar to a residential mortgage and you will usually need to provide 12 months of minimum income. However, there may be some specialist lenders that are willing to accept lending if you have less than 12 months income proof.

In addition, if you have previous history as a landlord, lenders will typically be more likely to approve your application, as the income criteria will be less important.

Mortgage advice for zero-hour contracts

Obtaining mortgage advice from a specialist advisor is a smart move for those on a zero-hour contract.

The truth is while some lenders recognise that the zero-hour contract is the future of today’s workforce, there are still very few that will consider your application.

Trying to figure out which lender will assist you can prove to be a daunting task.

However, a specialist advisor takes the guesswork out of your search. Furthermore, they can prepare your application and see you get the best mortgage rates possible.

Call us today on 01925 906 210 or contact us. One of our advisors can talk through all of your options with you.

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