Zero-hour contracts are a matter of contention, but the reality is that an employment position with flexible working and no minimum commitment is suitable for many people who fit second jobs around a main role or wish to work occasionally.
The challenge for mortgage lenders is that if you are one of the two million or so UK workers on this type of contract, they have little to go on when calculating your expected income.
Because there is no guarantee of work, it is not easy to estimate with any certainty what your earnings will be in the months or years ahead – and, therefore, whether you can keep up with your mortgage repayments.
Now that we have explained the conundrum from a lender’s perspective, we will look at some practical advice about getting the mortgage you need.
How Do Mortgages for Zero-Hour Employees Work?
Mortgages suitable for employees on zero-hour contracts, rather than fixed part-time or full-time contracts work like any other – the difference is that the lender knows upfront that your income is variable.
While you will not always find this sort of product through a high street bank, there are specialist lenders who offer flexible mortgage products.
Some people working zero-hour contracts may earn considerably more than those in full-time employment, so it is a case of assessing each application and making a judgement call based on the information provided.
Therefore, we strongly recommend working with an experienced, whole-of-market broker before you make any decisions or submit any applications.
It might be easier now to find a zero-hour contract mortgage than ever before, but leaving important details out of your application will give the lender no option but to refuse the mortgage.
Mortgage Application Tips for Zero-Hour Contractors
The biggest issue is that you must mitigate the lender’s perceived risk. If they are unsure whether you can afford the repayments or what income you are likely to earn, you need to demonstrate that you are a reliable, stable borrower.
Since your employment is not full-time, you may need to present more background information about the nature of your contract.
Next, we run through some areas you can expand upon to offer supporting details and context.
Lenders often start by looking into your employment history. If you have been with the same employer for several years and have a solid record of a regular income, this will go a long way to alleviating their risk.
Likewise, a track record of employment in the same sector or a particular professional skill or qualification makes it less likely you will suddenly experience a drop in hours.
If your employment is a little haphazard, with lots of jobs over short periods in different sectors, that could be more of a stumbling block.
In that case, we might suggest you wait until you have 12 months behind you under your current contract – although some lenders will not consider this a deal breaker, provided you apply to the right mortgage provider.
As intimated above, lender attitudes to zero-hour contract applicants will vary depending on your position within the company and your profession.
Highly accomplished professionals are low risk because it is very probable you will find plenty of other work if your zero-hour contract is not providing sufficient income.
We have published a separate guide about Mortgages for Professionals, explaining this further.
Qualified professionals such as teachers, doctors, nurses, engineers and accountants usually receive favourable mortgage rates, so your contract may not be a huge consideration.
A UK mortgage lender cannot offer a mortgage if they have any reason to believe you cannot afford it – this is a strict regulatory requirement.
As your private broker, it is our role to showcase what you earn and demonstrate that your income is stable, reliable, and sufficient to cover the mortgage payments comfortably.
There are several opportunities to do so:
- Including details of savings or other cash reserves.
- Presenting an application with low debt and a healthy credit report.
- Packaging your income and average calculations to give the lender confidence.
We recommend working with a broker because this ‘package’ of contextual information is crucial to mortgage success. A strong application with plenty of evidence, documentation and background records will go a long way to securing a competitive mortgage rate.
Conversely, a sparse application is very likely to be declined.
Mortgage Deposit Requirements for Applicants on a Zero-Hour Contract
Most residential mortgage providers will accept a deposit from as low as 5%, but the larger the risk, the higher your down payment should be.
Higher deposits remove some of the lender’s risk because they are offering a loan with a smaller LTV (i.e. the mortgage value is for a smaller proportion of the property purchase cost).
Some lenders will require a minimum deposit of 10% to 15%, but that is not always compulsory.
If you would like more information about mortgage deposit requirements, please get in touch, and we will have a chat about your circumstances to give you a better indication of what a lender will want to see.
Which UK Lenders Offer Zero-Hour Contract Mortgages?
Like any non-standard mortgage, it is not wise to apply to the first bank or lender you come across, but some mainstream banks will consider zero-hour contract applicants.
It all depends on the lender criteria and the policies they apply when making a lending decision – for example:
- Some lenders require 18 months of payslips, and others just three.
- Mortgage providers specialise in several different mortgage types – you might need a different lender for a buy-to-let mortgage than a residential mortgage, even if you apply for both with the same zero-hour contract income.
- Lending policies vary considerably when it comes to adverse credit. One lender might disregard late payments, whereas another could refuse any applicant with any bad credit issues whatsoever.
The key is always to ensure you pick a suitable lender whose policies and criteria are compatible with your circumstances and borrowing requirements.
Buy-to-Let Mortgages for Zero-Hour Workers
While you might assume it would be harder to secure a buy-to-let mortgage as a zero-hour worker, the opposite is true!
Investing in a rental property can provide an extra income stream (and additional earnings to supplement your contracted work).
Depending on your other circumstances, lenders will require a deposit of at least 15% to 25%. Still, if the rental income will comfortably cover the mortgage payments, you should be able to secure a buy-to-let agreement.
Some lenders do not have any income requirements for buy-to-let applicants, although others will ask to see a minimum income per year.
Finding a Mortgage With a Zero-Hour Contract and Adverse Credit
A low credit score or records of credit issues on your report will always add to the complexity of applying for any type of mortgage.
In this situation, it is normally best to consider specialist bad credit mortgage products because the lender is far more likely to consider the application.
The soundest starting point is to access your credit report, address any errors or inconsistencies, and understand what the information will mean to the lender.
One lender might reject any applicant if they have any credit instances on their file, and others will be happy with less serious credit problems such as a few late payments or defaults.
It is impossible to recommend a lender or a mortgage product without knowing the content of your credit report, but once you have a copy of your credit report, we can advise on steps you can take to boost your score.
Expert Mortgage Advice for Zero-Hour Workers
Think Plutus is a highly experienced mortgage broker. We understand that being turned down for a mortgage can be disheartening, especially if you feel that your income makes the repayments more than affordable.
A limited number of lenders will approve a zero-hour mortgage applicant, but that by no means indicates that you will not be successful with a little specialist support!
Preparing a compelling application, choosing your lender carefully, and showcasing your strength as an applicant are essential to mitigating the perceived risk of your contract structure.
Contact Think Plutus at your convenience if you would like help with your application documents, or need friendly, expert guidance picking a lender who will happily provide a zero-hour contract mortgage.