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Mortgages for workers on zero hours contracts

by John Saunders
3rd Jun 21 3:56 pm

If you work under a zero hours contract, obtaining a mortgage to buy a property is not always easy.

This guide aims to help you:

  • learn how mortgage lenders assess mortgage applications of workers on zero hours contracts
  • prepare for your mortgage application
  • improve the chances of being your mortgage being approved

What is a zero hours contract

The term ‘zero hours contract’ is a non-legal term used to describe a variety of employment contracts.

The aspect common across such employment arrangements is that the employer is not obliged to provide any minimum working hours to the worker.

A zero hours employment arrangement can offer flexibility to both the employer and the worker. The use of them is more popular with organisations that require a flexible workforce to meet different staffing needs around the year.

Is it possible to get a mortgage on zero hours contract

Yes. However, obtaining a mortgage on zero hours contract may be more difficult than under a standard employment contract. Every lender has different criteria of who they will lend to or approve for a mortgage. Some mortgage lenders do not approve workers under zero hours contracts at all.

However, given the number of people reported to be working on zero hours contract by the Office for National Statistics, there are lenders who will consider zero hours workers. The key is finding the right mortgage provider.

How mortgage lenders view zero hours contracts

Working on a zero hours contract means that your income is likely to fluctuate because your employer will not have guaranteed minimum hours of work to you. Consequently, mortgage lenders look less favourably upon people who work these contracts than someone on a permanent contract because assessing your ability to keep up with mortgage payments is more difficult.

While some mortgage lenders will never consider someone on zero hours contract, others may only approve you for a mortgage that has higher interest rates and additional deposit requirement.

Key criteria mortgage lenders will use to assess you for mortgage

One of the most important criteria for borrowing is the size of your regular earnings.

However, for zero hours workers, it is harder to prove a regular income to a mortgage lender. Some lenders view a zero hours contract only as secondary income and will give you a mortgage based on 50% of your earnings.

Further, every mortgage lender has its own general eligibility criteria to consider applicants for finance. Some other factors which mortgage lender will look into include:

  • How long you have been working for your current employer

You will find that most lenders require you to work for your current employer for a minimum of 12 months in most employment sectors.

  • How much working experience you have

If you worked in the industry for a long time, it would make your mortgage application more likely to be considered by the lender.

  • Which industry you work in

Some occupations and professions are viewed more favourably by mortgage lenders (such as teaching, accounting, engineering, medical, and legal professions).

Remember, the key is to find mortgage lenders that will consider someone on a zero hours contract and then applying for a mortgage with a lender that has products best suited to your needs.

How to prepare for your mortgage application if you are working a zero hours contract

It really helps being prepared for the initial interview with a mortgage lender. So once that has been arranged, make sure you have the following in order:

  • Evidence of employment history

Lenders will ask to see proof of employment over the past 18 months or more.

  • Payslips

The mortgage lender will want to see the payslips for the past 3 months at least.

  • Bank statements

You will also be required to show your income, outgoings, and savings

  • Employer reference

Though you might not be asked to provide an employers’ reference, it will strengthen your application if your employer gives you a good character overview.

  • Credit cards and other loans

You need to gather and arrange all information relating to your credit cards and outstanding loans.

How much deposit do you need for a zero hours contract mortgage?

In some circumstances, your mortgage application may be approved with just a 5% deposit. However, every other aspect of your application will have to be spot on for that to happen.

In most cases, mortgage lenders that consider applicants working under zero hours contracts will require at least a 10% deposit.

With that being said, there are other factors that mortgage lenders consider. For instance, if you have bad credit, you might be required to put down a 15% minimum deposit. Perhaps, even more, depending on the gravity of the issue.

How to improve your chances of being approved

Securing a mortgage if you are working on zero hours contract can prove to be difficult. However, it is not impossible, and you can improve your chances of being approved by:

Hiring a professional mortgage advisor

Mortgage brokers are experts in finding mortgage lenders that are best suited to ones’ needs. They can help you in preparing your applications and interviews.

Increasing your deposit

The larger the deposit, the more attractive your application will seem to your lender. It reduces the amount you are asking to be lent. Further, it also demonstrates that you can save money.

With a larger deposit, you can pay off the mortgage in less time and with lesser interest.

Improving your credit score

A better credit score can improve your chances of obtaining a mortgage regardless of which kind of employment you work. For those working under a zero hours contract, you can strengthen your application by taking steps such as paying off debts, closing any unused credit cards and being on the electoral register.

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