Are you one of the million-plus workers in the UK on a zero-hour contract?
If so, you might be wondering, can you get a mortgage on a zero-hour contract? It’s a valid question, given the unique challenges that come with this type of employment.
This article aims to guide you through the process of securing a mortgage, even if your income isn’t as predictable as lenders usually prefer.
Understanding Zero-Hour Contracts
Before we go into the nitty-gritty of mortgages, let’s first understand what a zero-hour contract is.
A zero-hour contract, as the name suggests, is an employment contract that doesn’t guarantee a minimum number of work hours. You could be working 40 hours one week and zero the next. It’s a flexible arrangement that suits many people, but it can make financial planning a bit tricky.
According to the Office for National Statistics, over a million people in the UK are on zero-hour contracts. These contracts are common in sectors like hospitality, retail, and healthcare, where demand for staff can fluctuate at short notice.
The Challenges of Getting a Mortgage
Traditional mortgage lenders like stability. They like to see a steady, predictable income, which gives them confidence that you’ll be able to keep up with your mortgage payments.
Zero-hour contracts, with their fluctuating income, can therefore be a no-no for some lenders.
Here are some of the challenges you might face:
- Income unpredictability: With no set hours, your income can vary greatly from month to month. This can make lenders nervous about your ability to consistently meet mortgage payments.
- Stricter requirements: Because of the perceived risk, lenders may set stricter criteria for zero-hour contract workers. This could mean you need a larger deposit or a longer employment history.
The Changing Landscape of Mortgages
The good news is that the mortgage market is evolving.
As zero-hour contracts become more common, some lenders are adapting their criteria to accommodate this growing segment of the workforce. These forward-thinking lenders recognise that zero-hour contracts are a legitimate form of employment and are willing to offer mortgages to those on them.
Here’s how these lenders are changing the game:
- Adapting to employment trends: These lenders understand that the traditional 9-5 job is no longer the norm for many people. They’re willing to look beyond the irregular income and consider other factors.
- Specialist lenders: Some lenders specialise in offering mortgages to those with non-traditional income sources, including zero-hour contracts. They have a deeper understanding of the challenges and benefits of these contracts and can offer tailored mortgage products.
How to Improve Your Chances of Getting a Mortgage
While getting a mortgage on a zero-hour contract is more challenging, it’s certainly not impossible.
Here are some tips to improve your chances:
- Show your financial potential: Even if your income fluctuates, showing a history of regular work and a steady income over time can help. Keep records of all your payslips and bank statements to demonstrate your earning potential.
- Your profession matters: Some professions are viewed more favourably by lenders, even if you’re on a zero-hour contract. For example, if you’re a nurse or a teacher, lenders may be more willing to offer you a mortgage because these professions are generally stable and in demand.
- Consider a larger deposit: The more money you can put down as a deposit, the less risk the lender takes on. If you can save up a larger deposit, you’ll improve your chances of securing a mortgage.
Remember, every lender is different, and what works for one might not work for another. It’s important to work with a broker and compare multiple lenders to find the best fit for your circumstances.
How Income is Assessed
When it comes to assessing income for zero-hour contract workers, lenders have a slightly different approach. They understand that your income does fluctuate, so they’ll want to see evidence of your earnings over a longer period.
Here’s how it typically works:
- Historic earnings: Lenders will usually ask for evidence of your earnings over the past 1-3 years. This can be in the form of payslips, bank statements, or tax returns. The longer you can show a history of consistent earnings, the better.
- Average income: Some lenders will calculate your income based on an average of your earnings over a certain period. This helps them to get a more accurate picture of your earning potential, despite the fluctuations.
- Future income: If you have a contract or agreement that shows you’ll be getting regular work in the future, this can also be taken into account.
Get some help
Researching mortgages when you’re on a zero-hour contract can be a real battle.
This is where the role of a specialist advisor, particularly an independent mortgage broker, becomes vital. These advisers have the flexibility to explore the broadest range of mortgage products and providers.
Their goal?
To find the perfect match for your unique circumstances.
A specialist broker is a treasure trove of knowledge and experience. They have a deep understanding of the mortgage market’s intricacies, including the specific challenges and opportunities that zero-hour contract workers face. They can steer you towards providers who are receptive and help you to get better prepared and mortgage ready.
Your broker will invest time in understanding your financial situation, your aspirations, and your concerns. This deep dive into your circumstances allows them to offer advice that is truly relevant to you.
Advisers will whittle down the list of potential lenders to maybe 3 or 4, all of whom will have competitive terms. They can then speak directly to a mortgage underwriter, the people that make decisions on your mortgage, to discuss the specifics of your case and what information is needed for a mortgage approval. This saves a huge amount of time and also prevents multiple mortgage applications being submitted, which will upset your credit profile.
One of the most significant advantages is the support they offer throughout the application process. Securing a mortgage can be a time consuming prospect, especially when your income is variable. A broker can assist you in preparing your application, ensuring you have all the necessary documentation and presenting your case in the most favourable light.
You might find this article interesting: Why would you use a mortgage broker instead of a bank?
Ready to explore your options?
If you’re just about to start your mortgage journey and could use the guiding hand of a professional, don’t hesitate to reach out to a reputable mortgage broker.
An independent mortgage broker can access over 100 lenders on your behalf. They will make the process smoother and more profitable than going it alone.
Keep reading, keep asking questions. The more you know, the better decisions you can make.
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