What is a fixed-term contract work mortgage?
A fixed-term contract work mortgage is a type of loan designed to accommodate individuals whose income is derived from fixed-term employment contracts rather than traditional permanent employment. The work is temporary and has a predetermined end date. These contracts may be used for various reasons, including project-based work or seasonal employment.
Unlike those with permanent contracts, which have no set end date and are typically ongoing, the nature of your employment contract may introduce additional complexities into the mortgage application process.
Lenders, however, offer mortgages with specialised terms and eligibility criteria to accommodate the income variability associated with fixed-term contracts. They will assess the borrower's income stability, creditworthiness, and ability to meet mortgage payments throughout the contract's duration.
Challenges when applying for a mortgage
Lenders will typically request documentation to prove your income. While having a stable job with a permanent contract can provide reassurance to lenders, being on a fixed-term contract doesn't automatically disqualify you. However, lenders may want to see evidence of your income history, so be prepared to provide payslips, employment contracts, and bank statements to demonstrate your earning capacity.
The duration of your fixed-term contract matters. Lenders may assess whether your contract is long enough to cover the mortgage term you are seeking. If your contract is relatively short or close to its end date, lenders might be concerned about your ability to maintain mortgage payments in the future. It's advantageous if your contract has a reasonable duration and is renewable or has a history of renewal.
Your employment history can also influence your mortgage application. If you have a history of transitioning from one fixed-term contract to another without significant gaps in employment, this may be viewed more positively by lenders. Additionally, if you have a strong industry track record or specialised skills that make you highly employable, it can enhance your prospects of securing a mortgage.
Lenders assess your ability to afford the mortgage repayments based on your income and expenses. Be prepared to provide a detailed breakdown of your financial situation, including any other sources of income and existing debts.
Some lenders may offer mortgage products specifically designed for individuals on fixed-term contracts. These products may have different eligibility criteria and terms compared to standard mortgages. Consulting with a mortgage broker who specialises in such cases can be beneficial, as they can help you identify suitable lenders and products.
Can you still get a mortgage on a fixed-term contract?
Yes, it is still possible, although it can be more challenging. Here are some ways to boost your application.
1. Start by building a strong financial profile. Maintain a good credit score by paying bills and debts on time, reducing outstanding debts to improve your debt-to-income ratio, and saving for a larger deposit to reduce your loan-to-value ratio.
2. Choose the right lender. Some lenders are more flexible than others when it comes to fixed-term contracts. Consulting with mortgage brokers who have experience working with clients on fixed-term contracts can help you identify lenders that are more likely to approve your application.
3. Remember to also provide comprehensive evidence of your income. Include payslips, employment contracts, and bank statements. If you receive any bonuses or additional income, be sure to document and include it in your application.
4. Highlight your employment history by mentioning any previous fixed-term contracts that were renewed or extended. If you have a history of transitioning smoothly from one contract to another, emphasise this. Providing references from your current employer, if possible, can also strengthen your case.
5. Ensure you have a stable employment history with minimal gaps between contracts. If your current contract is near expiration, discuss the possibility of renewal or extension with your employer.
6. Consult with mortgage advisors or brokers who specialise in helping individuals with non-standard employment arrangements. They can provide valuable guidance tailored to your situation. Explore specialist mortgage products designed for people on fixed-term contracts, as they may have more lenient criteria.
7. Create a detailed budget that shows how you'll manage mortgage payments along with other financial obligations. Be prepared to explain how you'll cover the mortgage if your contract isn't renewed.
8. Consider getting pre-approved for a mortgage before actively house hunting. This gives you a clearer idea of your budget and shows sellers that you're a serious buyer.
It may take time to find a lender willing to work with you on a fixed-term contract, so don't get discouraged if you face initial rejections. Your mortgage broker can help you go through the process smoothly.
Consult with a trusted mortgage adviser today
Mortgage advisers or brokers with experience in non-standard employment situations can provide valuable guidance. They can help you navigate the mortgage application process, identify lenders who are more likely to work with fixed-term contracts and assist you in presenting your case effectively.
Mortgage advisers often have established relationships with a wide range of lenders, including those who specialise in working with borrowers on fixed-term contracts. They can connect you with lenders who are more accommodating to your situation.
They are also well-versed in the intricacies of mortgage products and lending criteria. They can assess your financial situation comprehensively and advise you on the most suitable mortgage options available to you.
Finally, they can guide you through the entire mortgage application process, helping you complete paperwork accurately and efficiently. They know what documents are needed and how to present your financial information to enhance your chances of approval.
How much can I borrow if I have a fixed-term contract?
The amount you can borrow for a mortgage depends on various factors, including your income, expenses, creditworthiness, and the lender's criteria. While there's no fixed answer, lenders typically use certain guidelines to determine how much they're willing to lend to a borrower.
One common approach is to multiply an applicant's annual income by a specific factor, such as 4.5 or even up to 5 times their salary, to determine the maximum mortgage amount they may qualify for. However, it's essential to understand that this is a simplified rule of thumb and doesn't take into account all the intricacies of your financial situation.
Lenders will also consider other factors, such as your credit score, existing debts, monthly expenses, and the loan-to-value ratio (LTV). Your LTV is the percentage of the property's value that you want to borrow. Typically, the lower your LTV, the more you can borrow.
To get a more accurate estimate of how much you can borrow, it's advisable to consult with a mortgage lender or broker. They can assess your specific financial situation, consider all relevant factors, and provide you with a more precise figure. Finally, keep in mind that responsible borrowing involves not maxing out your borrowing capacity but rather borrowing an amount that you can comfortably afford to repay without financial strain.
Frequently Asked Questions (FAQs)
1. Can I get a mortgage on a fixed-term contract?
Yes, it's possible to get a mortgage on a fixed-term contract, but it may be more challenging than with a permanent contract.
2. What factors do lenders consider for mortgage eligibility?
Lenders consider factors like your income, contract duration, employment history, creditworthiness, and affordability.
3. How can I improve my mortgage eligibility on a fixed-term contract?
Improve your chances by maintaining a strong credit score, demonstrating income stability, saving for a larger deposit and consulting with mortgage advisers.
4. What's the typical income multiplier used by lenders for fixed-term contracts?
Lenders often use a multiplier of 4.5 to 5 times your annual salary, but this can vary depending on the lender and your circumstances.
5. Should I consider specialist mortgage products for fixed-term contracts?
Yes, explore specialist products designed for fixed-term contract workers, as they may have more flexible criteria.
6. Are government schemes available for fixed-term contract workers?
7. Is it necessary to consult with a mortgage adviser?
While not mandatory, consulting with a mortgage adviser experienced in non-standard employment situations can greatly assist in securing a mortgage.
8. How long should my fixed-term contract be for mortgage approval?
A longer contract duration is generally more favourable, but some lenders may consider shorter contracts, especially if they're renewable.
9. What's the importance of a stable employment history?
A stable employment history with minimal gaps between contracts can boost your mortgage eligibility.
10. Can I apply for a mortgage with a fixed-term contract if I'm self-employed?
Yes, self-employed individuals on fixed-term contracts can apply for mortgages, but they may have to provide additional documentation of their income and business stability.
The Mortgage Hut can help you
Mortgage advisers from The Mortgage Hut can negotiate on your behalf with lenders to secure the most favourable terms and interest rates for your mortgage if you have a fixed-term contract. They are updated on changes in the mortgage market and can provide insights into current interest rates and market trends.
Reach out to a knowledgeable adviser today by dialling 02380 980304. You can also reach us via email at firstname.lastname@example.org or secure your spot by scheduling an appointment through our contact form. You may also refer your friends to us so we can help them make the right mortgage option today.