Fixed-term contracts offer benefits to both employers and employees. They serve as valuable tools for addressing various staffing needs, such as covering staff absences, managing specific projects, accommodating maternity or parental leave, or handling short-term increases in business demands.
In the UK, a significant number of people, over 1.6 million people across the UK, are temporary workers, many with a fixed-term contract, and scores of them manage to successfully get onto the property ladder each year.
While it is possible to get a mortgage on a fixed-term contract, it can pose certain challenges. This guide relates specifically to employed (non-permanent) PAYE contractors rather than self-employed contractors.
Can I get a mortgage on a fixed-term contract?
Yes, It is possible to obtain a mortgage as a fixed-term contractor, although it can pose certain challenges. Lenders typically assess mortgage applications based on factors such as income stability, affordability, and the borrower’s ability to make repayments over the long term.
When considering mortgage applications from fixed-term contractors, lenders may consider the following factors:
- Length of time remaining on the contract: Lenders may consider the duration remaining on your current fixed-term contract. If there is a significant amount of time remaining, it may provide some assurance of future income stability.
- Length of time in your current contract: Lenders may also evaluate the length of time you have been in your current fixed-term contract. A longer tenure may indicate a level of stability and consistency in your employment.
- History of contracting: Lenders may review your contracting history, including any gaps in employment or fluctuations in income. They will likely assess the frequency and continuity of your contracting work.
- Your profession: The nature of your profession as a fixed-term contractor can influence the lender’s perception of income stability. Some professions, such as those in high-demand industries, may be viewed more favourably.
How long do you need to be left on a fixed-term contract to get a mortgage?
The length of time required on a fixed-term contract can vary depending on the lender and individual circumstances. Some lenders may have a minimum requirement of at least six months remaining on your contract, while others may be more flexible and accept a shorter duration.
In certain cases, lenders may be willing to forgo the minimum contract length requirement under specific circumstances.
For example, if you have a consistent two-year employment history in the same line of work, some lenders may be more lenient and consider your application even if your current contract has less than six months remaining. Similarly, if you have a contract extension already confirmed or anticipated, it can strengthen your application and increase the chances of mortgage approval.
Is it possible to get a mortgage on a 12-month contract?
Yes, it is indeed possible to obtain a mortgage with a 12-month fixed-term contract. Many lenders are willing to consider applications from individuals with at least six months remaining on their contract. Additionally, some lenders may require a track record of contract work or employment in the same line of work as a qualifying factor for mortgage eligibility.
Having a consistent history of contract work or employment within the same field can demonstrate your ability to secure future contracts and provide a level of stability to lenders. This can increase your chances of mortgage approval, even if you have a shorter remaining duration on your current contract.
How long do I need to have been in a fixed-term contract to get a mortgage?
In theory, you may not even need to have started the contract with some lenders. They may accept a forward-dated contract. In such cases, you typically need to have a minimum of 6-12 months remaining on the contract or a specific period of time working in contract roles, either before or in the same line of work.
How much can I borrow?
The amount you can borrow on a fixed-term contract mortgage varies depending on the lender and your individual circumstances. Generally, lenders consider around 4.5 times your income when determining your borrowing capacity. However, it is possible to borrow up to 5.5 times your income in certain cases.
It’s important to note that borrowing at the higher end of this range, such as 5 times income and above, is typically reserved for individuals with higher incomes and strong credit scores. Lenders assess your income, expenses, credit history, and overall financial stability when determining the maximum amount they are willing to lend to you.
Can I get a Buy-to-Let mortgage on a fixed-term contract?
Yes, it is possible to get a buy-to-let mortgage on a fixed-term contract. The criteria for buy-to-let mortgages are generally similar to residential mortgages, although there are some differences.
One advantage of buy-to-let mortgages is that they are often viewed as self-financing. This means that lenders may focus more on the property’s rental income potential rather than solely relying on the borrower’s income. As a result, some lenders may not require extensive income proof for buy-to-let mortgages, which can be beneficial if your fixed-term contract does not meet the lender’s standard income requirements.
What interest rates are available?
The interest rates and mortgage products offered to individuals on fixed-term contracts are generally the same as those available to other applicants.
However, it’s important to note that the number of lenders willing to consider applications from those on fixed-term contracts may be limited compared to those on permanent contracts. This reduced choice of lenders can potentially result in higher rates, but this is primarily due to the limited options available rather than specific increases in interest rates.
How much deposit do I need?
The deposit required when applying for a mortgage with a fixed-term contract is generally the same as for any other type of mortgage. Lenders typically offer mortgages with varying deposit requirements, ranging from as little as 5% of the property’s purchase price to higher percentages, such as 10%, 15%, or even 20%.
However, it’s important to note that the specific deposit amount you will need to provide can vary depending on factors such as your creditworthiness, income stability, and the lender’s criteria.
Which lenders offer mortgages to those on fixed-term contracts?
Most lenders do consider applications from applicants on fixed-term contracts, although each lender may have different criteria and varying perspectives on contracting situations. For instance, some lenders may view your contracting income more favourably than others.
As an example, Nationwide, a lender in the UK, may only take a portion of your income into account if you have less than a year remaining on your contract. On the other hand, there are lenders who do not follow this approach and may assess your income differently.
Can I get a mortgage with bad credit if I am on a fixed-term contract?
Yes, it is possible to obtain a mortgage on a fixed-term contract with bad credit. However, individuals with bad credit may face higher interest rates and may be required to provide a larger deposit to offset the risk associated with their credit history.
The severity of the bad credit will also impact the terms offered by lenders. Seeking assistance from specialist lenders or mortgage brokers like Strive who work with borrowers with bad credit, can help increase the chances of approval and negotiate more favourable terms.
Can I get a mortgage on a temporary contract?
Yes, it is possible to obtain a mortgage on a temporary contract, but it’s important to note that your options may be more limited compared to individuals with permanent contracts. Lenders generally prefer borrowers with stable and consistent income, which can be a challenge for those on temporary contracts.
Some lenders may require a minimum of 12 months of employment history on temporary contracts or a specific length of time remaining on the contract. This helps provide reassurance to the lender regarding your income stability and ability to meet mortgage payments.
What is the process?
The process of obtaining a mortgage on a fixed-term contract typically involves the following steps:
- Review your contract: Check the remaining length of your current contract and verify if it can be renewed or extended.
- Gather documentation: Collect documents related to your previous contracts and employment history. This may include contract agreements, pay stubs, tax returns, and bank statements to demonstrate your income stability.
- Consult with a specialist broker: Book an appointment with a mortgage broker who specialises in assisting individuals on fixed-term contracts. They can assess your situation, provide advice, and help you navigate the mortgage application process.
- Secure an Agreement in Principle (AIP): Work with your broker to obtain an Agreement in Principle (AIP) from a lender. This document confirms the amount you can potentially borrow based on your financial information.
- Property search: Begin searching for suitable properties that meet your requirements and budget. Consider factors such as location, size, and affordability.
- Make an offer: Once you find a property, make an offer to the seller. Negotiate the price and terms until both parties agree.
- Mortgage application: With the help of your broker, submit a formal mortgage application to the chosen lender. Provide all required documentation, including proof of income, employment history, and any additional information requested.
How can I improve my chances?
To improve your chances of getting a mortgage on a fixed-term contract, you can take the following steps:
- Maintain a good credit score: Lenders consider your credit history when assessing your mortgage application. Pay bills on time, manage existing debts responsibly, and check your credit report for any errors or discrepancies that can be corrected.
- Save for a larger deposit: A larger deposit can make you a more attractive borrower and provide you with access to a wider range of mortgage options. It also reduces the amount you need to borrow, which can improve your affordability.
- Build a longer track record on fixed-term contracts: Lenders may look for a history of successful contracts to assess your income stability. The longer your track record, the more confidence they may have in your ability to sustain your income.
- Ensure a longer remaining term on your contract: Lenders prefer borrowers with contracts that have a longer duration remaining. Having at least six months or more left on your contract provides greater assurance of your income continuity.
- Explore contract renewal options: If your contract is due to expire soon, try to negotiate a contract renewal or extension with your employer. A renewed or extended contract can strengthen your application and provide more options with lenders.
- Seek specialist advice: Consult with mortgage brokers or specialists who have experience working with individuals on fixed-term contracts. They can help you understand lender criteria, identify suitable mortgage products, and guide you through the application process.