Zero Hour Contract Mortgage

Zero Hour Contract Mortgage

Paige explains how mortgages work for people on a zero hour contract.

What is a zero hour contract mortgage?

It’s a mortgage application for individuals who are working on a zero hour contract. It works a little differently from a standard employed or self-employed application, which we’ll explain a further as we go on.

Is it possible to get a mortgage if I work on a zero hour contract? 

Yes, it’s 100% possible. It is a little bit more difficult, because lenders are looking to see that your income is stable. They want to trust that you can pay back your mortgage on a month-to-month basis. So they don’t want to see huge gaps in your work history.

How much deposit do I need for a zero hour contract mortgage?

It works the same as any other mortgage – you can have a 5% deposit, up to 20% deposit or more, depending on what you’ve got available. You’re not going to be scrutinised based on your savings. It’s all about how strong you are as an applicant to the mortgage. 

Sometimes a larger deposit can strengthen your application because it shows that you don’t need to rely on the bank’s money so much. But that’s not the basis they’re judging you on. It can help, but it’s not a deciding factor for whether a bank’s going to give you the money.

I generally recommend aiming for 10%, especially for a First Time Buyer. You can get a 5% mortgage but a 10% deposit steers you away from scarier things like negative equity. You’re not such a high risk applicant with a large Loan to Value.

Can self-employed workers on zero hour contracts get a mortgage?

Yes, they can. We generally look for two years’ SA302s, which are the tax documents you get from your accountant or from HMRC. They reflect your earnings over the last two years and how much tax you’ve paid. 

Lenders might want to see this alongside your contracts, or they may just treat you as a self-employed individual. It varies from bank to bank and on how you get taxed. 

The most important thing is to know whether your employer is taxing you or you are declaring your income to be taxed by HMRC.

How do lenders assess income for zero hour contract mortgages?

It depends on the contract. If you’re a higher income earner with a high day rate, they will assess you just on that day rate. 

If you’re in the nursing industry or hospitality, where the hours are a lot more flexible, they’ll average your last three months’ pay slips and annualise that. You need to have had a good three months, ideally. 

They may also ask for your contract to see how long is left on it. If you’ve only got, say, three months left – even if it is a 0 hour contract – they’ll want to see that you’ve got something lined up. Your company might confirm they will renew it or you might potentially switch to a different company. 

They’ll also want to see two years’ continuous employment, with no breaks. It’s very common for people to take a month-long break between contracts if they can afford to do that. But to a bank it can be a red flag – they see that as you voluntarily not working and not earning in that timeframe. 

What documents and income history do I need to gather to be considered for a mortgage on a zero hour contract?

Sometimes you’ll need your SA302 tax document, and something called a tax year overview. Your accountant should be able to provide these, or you can download them from HMRC. 

I would also recommend gathering your last two years’ history of contracts. Depending on what industry you’re in, they may also ask for a CV to show that you’ve got relevant experience in this field. They will check you haven’t randomly jumped into a completely new industry with no experience. 

Even if you have been a self-employed zero hour contract individual in that timeframe, you can’t just go from being a nurse to becoming an events manager the next year without having the relevant experience. The lender wants to know that you’re going to stay in your line of work, with a stable level of income coming in.

How much can I borrow when working on a zero hour or temporary contract?

It works similarly to a regular mortgage where you can borrow about 4.5 times your income. That doesn’t take your credit commitments into account, though. That will always impact the borrowing amount too. 

Once they annualise your pay, they treat that as any other salary. Generally they multiply it by 4.5. With some lenders, it may be a little bit less and with others it may be a little bit more. Each bank has its own views on things and its own way of stress testing the mortgage.

Speak to a broker for you a more accurate figure, but that’s a ballpark. So if you’re earning £20,000 you can borrow somewhere around £100,000 rather than £500,000.

Can I use benefits as income when applying for a zero hour contract mortgage?

Yes and no. It depends on the benefits you receive and on the bank. Some will take certain benefits whereas others don’t. 

If you’ve got disability benefits, for example, most banks will take them. Some will accept child-related benefits, but often only up to age 18. So if your child is 13 now, they will only include benefits for the next five years. depending on when they were born. 

Lenders will allow you to use child disability benefits, child maintenance or working tax credits up to age 18, generally.

Sometimes that can impact affordability over the term. It’s really specific to each individual. It’s one of the reasons to speak to a broker – if you are going to be including benefit income, we’ll know which lenders to go to.

How does my age impact my eligibility when applying for a mortgage as a zero hour contractor?

Most lenders will take you up to age 70 with not too many issues. Some lenders go up to age 75. 

It’s becoming increasingly common to take mortgages on a longer term, because mortgages are expensive at the moment and the cost of property is so high. 

If you’re within 10 years of retirement, lenders usually ask for evidence that you are paying into a pension, with a projection of your future pension, and that you are going to be able to sustain your mortgage payments once you have retired. That applies even if you plan on working past your retirement age.

Having all your ducks in a row makes the mortgage application a lot easier. That way, all the information is very clear to an underwriter – the person who is going to make the decision.

What is the maximum Loan to Value ratio for zero hour contract mortgages?

You can go up to 95% on a mortgage. Certain properties do have stipulations into the size of loan you can take on them. 

With new build flats, for example, a lot of lenders may restrict the Loan to Value because there’s more risk of them being overvalued. That also creates a risk for you of negative equity. Generally, on a house it’s 95%, though. 

Will I have to pay more on my mortgage as a zero hour contractor?

Generally speaking, no. It’s individual to each bank and whoever has the cheapest rates at that time. That may not be a lender who loves zero hour contract mortgages. 

But you will be able to get a mortgage with a high street lender as long as you’ve got good credit. They may not be the first lender on the list, but you’re not going to be paying much more than the cheapest lender at any point. 

The only time you might pay more is if we need to look at specialist lenders – perhaps because you don’t have a long career of self-employed contracting, or you’ve got adverse credit.

But if you have good credit and have been working for two years in your industry, with the history to show it, you’re not going to be paying more than someone on an employed salary.

How likely is it that I will be successful in obtaining a mortgage while having a zero hours contract? Is it possible to see if you will be accepted for a mortgage before applying?

For anybody whose income is somewhat flexible, I recommend getting an Agreement in Principle through a mortgage broker. 

We will look at your income and assess if there are any gaps or issues. If not, we can get you something in writing that based on the evidence provided so far, you should be able to borrow a certain figure with a named lender. 

That’s a very helpful step you can take before going out to find your dream home.

What other factors should I consider when applying for a mortgage on a zero hour contract?

The main thing is not taking breaks between contracts – which I know is hard because everybody would like an extra two or three weeks off. But it is something that is heavily scrutinised. 

Also, keep a good eye on your credit so you can stick with the mainstream lenders. Don’t miss utility bills and make sure you’ve got direct debits set up with your credit commitments..

How can someone improve their chances of getting a mortgage on a zero hour contract?

It’s just being prepared to have your mortgage scrutinised by the bank. Making sure your credit is on track, that you have all your documents ready and there are no breaks in your contracts.

Check the contract has been signed – I’ve seen a lot of cases where a client has signed it but not the employer. That can be quite important as well.

What steps do I need to take to successfully apply for a mortgage on a zero hour contract?

Speak to a broker. Our job is to make sure that you are getting the best possible outcome that meets your needs. If you’ve not got the documents you need, we will tell you how to get them and how to improve your odds of getting a mortgage. 

It’s all part of our job to help you find all those little pieces and make sure it is as simple as possible.

What is your experience with zero hour contract mortgages?

My experience is good with these contracts. I mostly deal with people in nursing, working with the elderly. I also do a lot with IT contractors. I’ve done a good number of these mortgages over the years – and I do see weird and wonderful new contracts pop up in industries that you don’t even know exist! 

The thing to remember is it’s all assessed in the same way. It doesn’t matter how much you’re paid or what you do, the overall structure remains the same. We’re always asking for the same things. Once you know what those are it’s a very simple formula to follow to get you over the line.

When should I see a broker about a mortgage on a zero hour contract?

If you’re thinking about looking for a home or a mortgage, call a broker first. Even if you’re a year away, we will give you a timeline of what to do. I’d always recommend being over prepared than underprepared. 

There’s nothing worse than finding your dream house and realising a silly mistake six months ago has now thrown out your opportunity to be a homeowner.

Is this the same advice for people not on a zero hour contract?

Yes, for anybody who’s got complicated income – so anything that’s not simply self-employed or employed, it’s always worth speaking to us. Get in touch as soon as you get the hunch that you want to buy, because we can determine very quickly the likelihood and how to prepare accordingly.

How can I speak to an expert for advice on a mortgage on a zero hour contract?

You can always send in a request via our website with a quick summary of what you’re looking to do and where you are at with the process. Or, you can call the office number. There’s a lot of ways to reach out to us and get free advice without any obligation at all.

What else do we need to know about zero hour contract mortgages?

Staying informed is the most important thing. It is a struggle out there – especially trying to find the key information you’re looking for. 

I always recommend calling in and speaking to somebody – it’s going to put you in the best possible position . We help you determine whether it’s the right choice to start this process now, or in a year’s time, or maybe a little bit longer than that. There’s no right or wrong time as long as you understand what’s involved with the process.

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