Fixed Term Employment Mortgage Contract

Fixed Term Employment Mortgage Contract

Paige answers some frequently asked questions about mortgages on fixed term employment contracts.

How does a mortgage on a fixed term contract differ from a standard mortgage?

The main thing is that lenders are looking more into you as an individual, your current contract and how easily you’re going to get further employment. With a standard income, they take it as read that you’re in a job and not looking at leaving any time soon.

Are there any specific income proof requirements for self-employed applicants?

For fixed term contractors, lenders will ask for a copy of your current contract. They will look at its length and also how long you’ve been contracting for. They may ask for previous contracts, and also potentially your CV to show you’ve got experience in that industry.

Do you need proof of income when applying for a mortgage with a fixed term employment contract?

Yes. Depending on how you’re paid, this can vary. They’re going to probably ask for your invoices, your payslips or your tax returns, depending on how your tax is paid.

How does the length of your current contract impact your eligibility for a mortgage? How long should you be in your current job or agency before applying?

Generally speaking, most lenders want to see at least three months and sometimes six months left on your current contract.

They will often require a track record of you being in that industry for two years – although sometimes you can get it done on one, depending on what your speciality is and if you’ve transitioned from an employed role onto a fixed term contract.

They will also look at how much you’re paid. If you’re a day rate contractor on a fixed term contract, they will assess you differently to someone on an hourly rate.

What kind of deposit do you need for a fixed term contract mortgage?

Luckily they’re not too harsh on this one – you can use the same amount of deposit as any other applicant. The minimum is 5%, up to a maximum of 95% deposit, so there’s a whole range.

I always recommend putting down at least 10% if possible, to negate the risks of running into negative equity, but 5% will work. Lenders will just stress test you a little bit harder to make sure you can afford the mortgage. They may want to look into your circumstances a little bit more.

What are some of the factors that determine how much you can borrow on a fixed term contract?

Mostly it’s a reflection of the current contract you’re on – that you’re getting paid consistently each month. If you’re on an hourly rate, they’ll average the last three months or so.

Sometimes they will look at the original contract and work off the basic amount. So if you’re working 30 hours a week at £12 an hour, they will only use that to calculate an annual income – even if you’re doing extra hours on top of that. They’ll work off the lower amount because that’s what you’re contracted to do.

What costs are associated with getting professional advice for a fixed term contract mortgage?

They’re not too bad compared to an adverse mortgage, for example, or other more complicated scenarios.

The average cost of a broker is really variable. It might depend on the size of the loan you’re looking to take, or it can be a flat rate across the board. Different firms have their own approaches. It’s something that we’ll explain during our initial consultation. There are a few different factors, one of those being loan size.

Other fees that are involved include the fees that a solicitor will charge for a property purchase. Survey fees will also come into it, and you should look at setting aside a budget to cover home insurance and life insurance to make sure you and your home are protected in a worst case scenario.

Is it possible to get a remortgage on a fixed term contract?

Yes, absolutely. With the mainstream lenders, if your contract had changed since you first applied you could stay with the same lender. I’d always recommend calling the broker who organised your initial mortgage and chatting with them about your current circumstances.

We can recommend either switching you onto a new rate with a different lender or potentially getting you a new deal with your current lender based on their latest rates.

Mortgage advisors sometimes get exclusives with high street banks, so what a bank can offer you as a client upfront may not actually be the cheapest deal.

Are there any specific things you should do to improve your chances of getting a mortgage while you’re on a fixed term contract?

The key thing is making sure there are no big gaps in between your contracts. Banks want to see that you can be employed within your industry very quickly once your contract ends.

If you’re coming up to the end of your contract soon, a lender will ask to see a new contract lined up for your current end date.

Having that two year track record is critical. They want to see you’re capable of jumping around from company to company. While the rate of pay is often more competitive, they need to see that it is consistent for you.

It’s helpful if you have been on a fixed term contract with a company for a few years and you will continue getting your contract extended.

How do you go about getting a mortgage when you’re on a fixed term contract?

A good credit score is important when it comes to applying for a mortgage. Stability and reliability are the main things a bank wants to see from you as an individual, so make sure your contracts are all accessible and that your monthly payments are all up-to-date.

If you can save a slightly larger deposit, they will see you as less of a risk. When you have a smaller deposit, if you don’t pay their mortgage on time they’re more likely to be able to recoup the money that they’ve lent you.

Are there any additional steps someone would need to take when applying for a mortgage on a fixed term employment contract?

The main thing to do is have that chat with a broker. We do all your research for you. People can get themselves confused by Googling too much – it’s often not clear and banks aren’t always transparent about what they will and won’t do.

Brokers can see all the criteria and we know who does what and how easily it can be done. It’s always helpful to hand off the responsibility to a broker who will do it free of charge for you.

We take a lot of the stress away from you, and you will get more concise answers than by hopping from bank to bank by yourself.

What kind of mortgage advice is available to those seeking a mortgage on a fixed term contract?

Mortgage brokers, especially those who specialise in non-traditional employment arrangements, provide advice that’s tailored to you.

Most of the time it’s free of charge, depending on who you speak to. At First Thought, all our initial advice is completely free of charge. We’ll get you to a point where before you even apply, you’re confident you can purchase your home.

We’re also a good resource in answering those really niche, specific questions to your job, your industry and your specific background. I don’t think I’ve ever had a case where two contractors have had the same background or the same length of contract.

It will always vary. So having somebody who really knows what they’re talking about on specialised income will be your greatest asset.

What else do we need to know about fixed term employment contract mortgages?

I’d always recommend being really transparent with your mortgage broker. If there’s anything that you’re worried about in regards to your contract, how long it is or when it ends, be upfront about that.

We can give you advice on your specific circumstances and help you set yourself up to get a mortgage – even if it’s not immediately. It might be in a year’s time, or six months from now.

We can make sure that you’re heading on the right path, so you don’t fall into any holes that may prevent you from borrowing in the near future.

Please note: Your home may be repossessed if you do not keep up with your mortgage repayments.