With over 1 million workers in the UK employed on zero-hour contracts, there is a growing demand for mortgages that accommodate this type of income. However, not all lenders offer mortgages specifically tailored to zero-hour contract workers, and the criteria for obtaining such mortgages can be stricter compared to those for individuals on permanent contracts.
This guide provides comprehensive information about mortgages and zero-hour contracts, addressing the unique challenges faced by those with variable or unpredictable income.
What is a zero-hour contract mortgage?
A zero-hour contract is an employment agreement where the employer does not guarantee a specific number of working hours to the employee. The worker is only paid for the hours they actually work, and there is no obligation for the employer to provide regular shifts. This type of contract offers flexibility to employers but can result in uncertainty and inconsistent income for employees.
Can you get a mortgage on a zero-hour contract?
Yes, it’s certainly possible to get a job with a zero-hour contract, although it’s usually dependent on several factors, including:
A stable employment history, especially in the same line of work, can increase your chances of mortgage approval with a zero-hours contract. Lenders prefer to see consistency and reliability in your employment, even if it’s on a zero-hour basis. Demonstrating a track record of consistent work can help establish your ability to meet mortgage payments.
Certain job roles, particularly skilled professions, may have more lenient criteria for mortgage approval.
For example, zero-hour locum doctors, who are in high demand, may be more likely to secure a mortgage due to their profession. Lenders recognise the reliability and income potential associated with certain skilled roles.
Lenders typically assess your earnings by averaging your income over a specific period, such as 3, 6, or 12 months. This averaging period provides a more accurate representation of your income stability and affordability.
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How to get a mortgage on a zero-hour contract
To get a mortgage on a zero-hour contract, follow these steps:
- Speak to a specialist broker: Contact a mortgage broker who has experience dealing with clients on zero-hour contracts. They will have knowledge of lenders who are more flexible with employment types.
- Gather your documents: Prepare the necessary documents, including bank statements, employment contracts, and payslips. These documents will help demonstrate your income stability and affordability.
- Broker researches options: The broker will research mortgage options available to you based on your employment history, income, and other relevant factors. They will identify lenders who are likely to consider your application.
- Obtain an Agreement in Principle (AIP): The broker will help you secure an AIP from a lender. This is a preliminary indication that the lender is willing to offer you a mortgage based on the information provided.
- Keep your broker updated: Provide your broker with the most recent payslips and any changes in your employment situation. This will allow them to accurately assess your current income and provide up-to-date advice.
- Make an offer on a property: Once you find a property you wish to purchase, inform your broker. They will guide you through the mortgage application process and help you submit all the necessary documents.
Remember that the amount you can borrow is based on your payslips at the time of the mortgage application rather than the AIP. Therefore, it’s important to keep your broker updated with the most recent payslips to ensure accurate calculations of your borrowing capacity.
Will I need a large deposit as I’m on a zero-hour contract?
As a zero-hour contract worker, the mortgage options available to you are generally the same as those available to individuals with other income setups. However, the assessment of your income may be slightly different. The deposit requirements for zero-hour contract workers are similar to those for other applicants.
In theory, if you can demonstrate that you can afford the mortgage repayments, you should be able to secure a mortgage with as little as a 5% deposit.
Lenders that offer zero-hour contract mortgages
Many lenders accept zero-hour contracts, but different lenders have varying criteria when it comes to considering zero-hour contracts for mortgage applications. Factors such as income fluctuations and the source of income can impact the lender’s decision.
It’s important to research and compare the offerings of different lenders to find the one that aligns best with your specific circumstances. Lenders like Halifax, Santander, and NatWest do consider zero-hour contracts, with Halifax typically requiring a minimum of 12 months of contracting. Barclays may have more flexible criteria for certain types of professionals.
Buy to let mortgage lenders for zero-hour workers
Just as with residential mortgages, there are lenders who consider buy-to-let mortgages for individuals on zero-hour contracts. The key is to find the most suitable lender that accommodates your specific circumstances.
Buy-to-let mortgages are often considered based on the property’s ability to generate rental income (self-financing) rather than the borrower’s personal income. This opens up opportunities for individuals on zero-hour contracts, as some buy-to-let mortgage lenders do not require a minimum income at all.
Adverse credit lenders for zero-hour applicants
Having adverse credit, along with zero-hour income, can make it more challenging to obtain a mortgage. In such cases, the pool of available lenders may be reduced, and you may face higher interest rates or require a larger deposit.
The impact of adverse credit will depend on various factors, including the severity, recency, and specific circumstances surrounding the adverse credit events. Different lenders have varying criteria and approaches when assessing creditworthiness, so some may view adverse credit more favourably than others.
What rights are afforded to zero-hour contract workers?
In the UK, zero-hour contracts are governed by various laws and regulations. Here are some key aspects of contract laws relating to zero-hour contracts in the UK:
- Employment Rights: Zero-hour contract workers have certain employment rights, such as the right to the National Minimum Wage, statutory holiday and sick pay, protection against discrimination, and access to pension schemes (if eligible).
- Exclusivity Clauses: Exclusivity clauses, which previously prevented workers from accepting work from other employers even when no work was offered by their primary employer, have been largely banned. This allows zero-hour contract workers to have more flexibility in seeking additional employment.
- Right to a Written Contract: Employers are required to provide a written statement of employment particulars within two months of the start of employment. This statement should include terms and conditions, such as the nature of the contract and provisions related to working hours.
- Variation of Contract: Employers must follow proper procedures if they wish to make changes to a worker’s contract, including changes to working hours or pay. Workers have the right to refuse such changes if they do not agree to them.
- Protection against Detrimental Treatment: Workers on zero-hour contracts are protected from being treated less favourably or facing any form of detriment due to their employment status.
How to improve your chances of securing a mortgage as a zero-hour contract worker?
To improve your chances of getting a mortgage as a zero-hour worker, consider the following steps:
- Save for a larger deposit: A larger deposit can positively impact your mortgage application, as it reduces the loan-to-value ratio. Saving for a higher deposit demonstrates financial stability and lowers the lender’s risk.
- Apply at the right time: It’s advantageous to apply for a mortgage when you have a good track history of earnings and minimal periods of income fluctuation. This demonstrates consistent income and increases your chances of mortgage approval.
- Establish a solid employment history: Having a minimum employment history of at least one year can provide more options when it comes to lenders. A longer employment history indicates stability and increases your credibility as a borrower.
- Maintain a good credit score: A good credit score is important for mortgage approval. Make sure to pay bills and debts on time, manage credit responsibly, and avoid any negative marks on your credit report. Regularly review your credit report to ensure accuracy.
- Provide documentation: Gather and provide all necessary documentation to support your income, such as bank statements, payslips, and contracts. This helps validate your earnings and stability to lenders.
- Seek advice from a mortgage specialist: Consulting with a mortgage specialist who has experience working with zero-hour contract workers can provide valuable guidance. They can help identify suitable lenders, navigate the application process, and present your case effectively.
By following these steps and demonstrating financial stability, a solid employment history, and responsible credit management, you can improve your chances of getting a mortgage as a zero-hour worker.
Specialist advisors for workers looking for a zero-hours contract mortgage
Working with a mortgage broker who specialises in zero-hour contract workers can be beneficial in several ways:
- Expertise and Knowledge: A specialised mortgage broker will have a deep understanding of the challenges and nuances related to securing mortgages for individuals on zero-hour contracts. They will be familiar with lenders who are more accommodating to this type of employment and can provide tailored advice based on your specific circumstances.
- Access to a Wide Range of Lenders: Specialised brokers often have access to a broader network of lenders, including those who are more flexible with their criteria for zero-hour contract workers. This increases your chances of finding a suitable mortgage option that aligns with your needs.
- Saving Time and Effort: Instead of individually researching and approaching multiple lenders, a broker can do the legwork for you. They will gather the necessary documentation, present your case to lenders, and negotiate on your behalf, saving you time and effort in the process.
- Personalised Guidance: A specialised broker can assess your unique situation and provide personalised guidance on the best mortgage options available to you. They can help you understand the potential rates, deposit requirements, and eligibility criteria, empowering you to make informed decisions.
- Increased Approval Chances: With their knowledge and expertise, specialised brokers can maximise your chances of mortgage approval. They can present your application in the best possible light, addressing any potential concerns or challenges associated with your zero-hour contract.
Overall, working with a mortgage broker specialising in zero-hour contract workers can provide you with valuable support and increase your likelihood of securing a mortgage that suits your needs and circumstances.
Yes, a zero-hour contract does count as employment. Even though there may not be a guarantee of specific working hours, individuals on zero-hour contracts are considered employees. They have a legal relationship with their employer and are entitled to certain employment rights and protections. This includes rights such as the National Minimum Wage, statutory holiday and sick pay, and protection against discrimination. While the working hours may vary or be irregular, individuals on zero-hour contracts are still recognised as being in employment.
Yes, Halifax policy states that those employed on a zero-hour contract will be considered. The total of the last 12 calendar months’ income only will be used, and all the income must be evidenced The customer must have been employed on a zero-hours contract for a minimum of 12 months (same employer OR same type of work but different employers)
Yes, Barclays policy states that zero-hour contracts can be considered provided sustainability of income at the required level is clearly evidenced.
When it comes to mortgage products, lenders typically offer the same rates and terms to individuals on zero-hour contracts as they do to applicants with other types of employment contracts, as long as the criteria and affordability requirements are met.
Lenders primarily assess an applicant’s ability to repay the mortgage, considering factors such as income stability and creditworthiness. If you meet the lender’s criteria and demonstrate affordability, you should be eligible for the same rates and terms as other income types.