Fortunately, many mortgage providers are moving with the times and becoming more flexible with their income requirements. Provided you approach the right one, there are plenty of favourable mortgage deals available for those with unconventional job types.
Keep scrolling to understand why zero hour contractors can struggle to find a mortgage, what the typical lender eligibility criteria are, and how working with a broker can save money throughout the course of your mortgage.
What is a zero-hour contract mortgage?A zero-hour contractor mortgage is a home loan specifically aimed at those who don’t have a full-time contract of employment but do have a zero-hour contract in place.
Zero-hour contract mortgages differ from standard mortgages because providers typically base affordability on borrowers’ annual salaries. Because contractors don’t usually have guaranteed working arrangements, lenders have to look to other factors for an indication of projected earnings.
Can I get a mortgage if I’m on a zero hour contract?It’s very possible to secure a mortgage as a contractor, even if you’re working to zero hour arrangements. Provided your income is sufficient to cover the repayments (and you have the evidence to prove it), there are providers who will consider lending to you.
Given that contractors are often highly skilled specialists within their trade, some lenders recognise that being on a zero-hour contract doesn’t mean you earn any less than full-time workers, nor make you any less mortgageable.
Specialist self-employed mortgage lenders are familiar with the challenges faced by those with complex income arrangements, and won’t penalise you based on your job type. But these lenders can be difficult to find without the help of a broker.
Why is it more difficult to get a mortgage as a zero-hour contractor?To determine whether they are willing to lend and what rates they’ll offer you, mortgage providers assess the level of risk you pose as a borrower.
Historically, contract workers have been deemed higher risk applicants as there can be long down-periods between jobs and regular fluctuation in earnings, which makes it difficult for lenders to assess your affordability.
Mortgage providers also want to be confident that you will be able to keep up with your repayments for the duration of the agreed term. If you’re working on zero hour contracts, it’s difficult to guarantee what your income arrangements will look like in the future.
As a result, many providers can be skeptical about lending to contract workers, and those that do often charge higher interest rates, and / or attach other stipulations to their terms (such as higher deposit requirements) to counteract the added risk.
How to get a mortgage if you’re on a zero-hour contractZero-hour contractors can be viewed as high risk, and are more susceptible to mortgage rejections or offers with unfavourable interest rates. With the odds stacked against you from the start, the challenge is to demonstrate to lenders that you’re not a high-risk borrower.
Although your contract may be zero-hours, there are plenty of other factors mortgage providers can base their assessment on through a deep-dive into the details of your contract, and your employment history as a whole.
Your employment historyYour employment history can say a lot about your borrowing potential. For example, if you’ve worked in the same sector, or for the same employer for a long period of time, it can be a good indicator that your employment is secure.
On the flip side, if you have large gaps in your employment, have only recently started a new role, or if your roles have been diverse and scattered across a range of different industries, this can be a warning sign for lenders.
Depending on your circumstances, some lenders may require applicants to have been with the same employer for at least 12 months.
Your profession and roleYour occupation can be a huge contributing factor to your mortgage eligibility, especially if your role requires a specialist skill or qualification. This suggests that you won’t find it difficult to find work, and have some element of financial stability.
Contract work is also more commonplace in certain fields, and some lenders even reserve favourable rates for those qualified in professions such as accountancy, teaching, or medicine - regardless of your contractual status.
Ability to showcase your earningsThe way in which you package your application can make all the difference. It’s all very well declaring your annual income to a prospective mortgage provider, but without proof the only offer you’re likely to be shown is the door.
To showcase your true financial potential, you’ll need to provide up to twelve months of bank statements and payslips along with previous P60’s.
How much deposit will I need if I have a zero-hour contract?Although 5% mortgages have made a comeback, applicants usually need to demonstrate stellar circumstances in other areas. Since being a contractor adds an element of risk, lenders often have higher deposit requirements - often around 15 - 20% - to offset this.
While it may be possible to find a provider who will offer you a 90% or even 95% loan-to-value (LTV) mortgage, a bigger deposit will nearly always work in your favour. This is true regardless of your job type.
In putting down a larger deposit, you’re reducing the investment risk for lenders. A lower LTV usually means a wider range of providers and better rates, with every 5% LTV generally attracting more lenders and unlocking lower interest deals.
How is income assessed on a zero-hour contractor mortgage?Income and affordability assessments can be trickier if you have a zero-hour contract, especially if your earnings regularly fluctuate. To get an idea of your monthly repayment potential, lenders will usually calculate an average of your income over time.
You will need to provide evidence of your historic earnings via payslips and corroborating bank statements. For zero-hour workers, some mortgage providers require two to three years’ history, but some will consider lending based on 12 months’ trading.
What size mortgage can a zero-hour worker get?Once your average annual income has been established, many mortgage providers use income multiples as a starting point to base lending. The standard allowance is a multiple of 3.5 - 4.5x your yearly earnings, although this will vary depending on the lender, and the level of risk you present in other areas.
For an employee taking home an average of £60,000 a year, this could mean you may be eligible for a £210,000 mortgage from lenders within the lower lending bracket, and £270,000 from those within the higher one. That being said, in exceptional circumstances some providers may be willing to lend up to 5.5 or even 6 times your earnings.
But income multiples alone are not sufficient for lenders to base their decisions; further affordability checks are carried out to check your earnings are sufficient to cover the proposed repayments, after the deduction of any outgoings.
Lenders determine this by calculating your debt-to-income ratio, which is the total sum of your fixed monthly expenditure divided by your monthly income, multiplied by 100 to get a percentage. For example, if you earned an average of £5,000 a month and spent £2,200 on rent, utility bills and additional debts, your DTI would be 44%.
As a general rule, the lower your DTI, the more favourably lenders will look at you because it means you have more disposable income available. A DTI of 35% or less is usually deemed ‘good’, 36 - 49% ‘acceptable’, and 50% or more ‘poor’.
What other factors impact my eligibility as a zero-hour worker?While it’s advisable to approach a lender specialising in mortgages for zero-hour contract workers, there’s a good chance you could still qualify for a regular mortgage from a mainstream lender.
Each mortgage provider works to their own criteria, and the way applicants’ eligibility is assessed is very different. Depending on your circumstances, there may be other, more pertinent factors which could impact lender suitability.
Zero hour contracts and interest-only mortgagesLending criteria for interest-only (IO) plans have tightened recently, so if you’re seeking this type of mortgage as a contract worker you may be best off approaching an IO specialist for your best chance of approval.
That being said, so long as you meet the eligibility criteria and have a repayment plan in place for clearing the debt at the end of the term, there’s no reason you shouldn’t be considered for an IO mortgage as a zero-hour contractor.
Age and zero-hour contract mortgagesYoung or older borrowers can be perceived as riskier ventures for mortgage providers, which is why many have lending age caps in place to protect against this.
Most lenders impose upper age restrictions for taking out a new mortgage (usually 55 - 60), and another for paying them off (usually 70 - 75), which can have a direct impact on term length eligibility. If age is a concern, there are plenty of mortgage options for older people available.
For zero hour contract mortgages specifically, some lenders may also have minimum age requirements. Most lenders only accept applicants over the age of 21 as it gives borrowers time to build up a credit history, on which lending will, in part, be based on.
Bad credit lenders for zero-hour contractorsHaving a poor credit score or history of adverse is often a red flag to lenders. Although there are specialist bad credit mortgage providers available, this is likely to add another element of risk to your application as a zero-hour contract worker.
Regardless of your job type, some mortgage providers refuse to lend to anyone with a history of adverse, whereas others may limit the amount you’re able to borrow or attach additional stipulations to your agreement - depending on the circumstances.
More often than not though, eligibility depends on the severity and recency of the instance, the circumstances surrounding it, and how your finances have fared since. External factors, such as job security and deposit size, may also contribute to lending decisions.
How can I improve my chances of getting a mortgage as a zero-hour contractor?From a mortgage provider’s point of view, their decision to lend is largely based on the level of risk you pose as a borrower. If you can do anything to reduce that risk, chances are you’ll be a more attractive lending prospect.
There are a number of tips for getting a mortgage that apply to all types of borrower, but as a zero-hour contractor, you may be able to further boost your chances of approval and secure the most competitive rates by:
- Putting together a solid application that clearly demonstrates your earnings and any savings you have. This should include bank statements, invoices, payslips, etc. up to a maximum of three years.
- Saving as much deposit as possible - the higher your deposit, the stronger the application, which should give you access to a wider choice of lenders and better interest rates.
- Not applying for any other form of finance in the three months prior to applying for a mortgage.
- Using checkmyfile or a similar tool to access your credit reports, and take steps to improve your credit score before you apply.
- Asking a broker to find you a mortgage provider specialising in zero-hour contractor mortgages.
Find specialist zero-hour contract mortgage lenders with the help of a brokerWhile many lenders have adapted to changes in employment trends and are willing to offer mortgages to those on zero-hour contracts, it’s advisable to enlist the help of an independent broker for access to the most competitive deals.
Because your needs are niche, approaching any old lender could well result in a rejection and negative marks for your credit file. Our advisors know exactly which lenders to approach, and will only recommend those offering the best rates and most suitable terms for your circumstances.
For zero hour contract workers, having the required paperwork at hand to showcase your earnings and mortgage-ability is key to a successful application. If organisation isn’t your strong point, our brokers are more than happy to help you get your financial affairs in order.
Save time, money and wasted rejections with the help of The Mortgage Hut. Submit an online enquiry or give us a call on 02380 980304, and one of our advisors will be more than happy to have a free, no-obligation chat to discuss your options and next steps.
Zero-hour contractor mortgage FAQSNavigating the rocky waters of the mortgage landscape can be tricky as a contract worker, so we’ve done our best to cover the most common questions we receive on the topic.
Is it more expensive to get a mortgage as a zero-hour contractor?Zero-hour contractor mortgages won’t necessarily cost you more, but because it’s more difficult to be accepted by mainstream lenders, this can impact how favourable (cheap) the rates you’re offered are.
That being said, if you approach lenders specialising in these sorts of mortgages, you may be able to secure just as good a rate as someone in permanent employment. Other factors, such as deposit size and credit history, can also impact how expensive your mortgage is.
Can I get a buy-to-let (BTL) mortgage as a zero-hour contractor?In some respects it may be easier to secure a BTL mortgage as a contract worker, because eligibility is usually based on the predicted rental income the property is likely to generate rather than personal income.
For experienced landlords in particular, lending policies are typically more flexible where personal income is concerned. Some providers don’t ask for any proof at all, but many do have minimum requirements. A broker can recommend suitable lenders offering BTL mortgages on a projected rental income only basis.
Will I be able to get a joint contract mortgage if I have a zero-hour contract?Yes it’s certainly possible, but you’ll still need to meet your chosen provider’s lending criteria. Having a second applicant will only carry so much weight, and you’ll need to meet the combined income and affordability requirements.
Depending on your circumstances, applying for a joint mortgage could strengthen your borrowing position in various ways - especially if the second applicant is in full-time employment and has a clean credit history.
Are self-certification mortgages still available?Self-certification or ‘self-cert’ mortgages were specifically designed for self-employed, freelancers and commission-earning borrowers. They allowed applicants to self-certify their earnings without the need to provide evidence.
Unsurprisingly, they were abused by a lot of people who ended up being granted mortgages that simply weren’t affordable. The problem became so severe that self-cert mortgages were banned in the UK in 2011 by the FCA.