Zero Hour Contract Mortgage (Part 1)
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Zero Hour Contract Mortgage (Part 1)
Adam Messer talks to us about mortgages for zero hour contractors. Episode one of two, recorded in August 2024.
Is it difficult to get a mortgage on a zero hour contract?
Yes and no. Ultimately it’s still giving you income, so it’s fine to use, but there are some things to be aware of with zero hour contracts.
The main point is that you could be told that you’re not needed at work, and then your income is gone. That’s a risk factor for the lender. They’ll still use zero-hour contract income, but they generally want to see a 12-month history of your zero-hour contract.
If you’ve got that, we could use it. We’ll add up what you’ve earned over the year and use that average. If you’ve just started a zero-hour contract job, you’re going to struggle to get a mortgage any time soon. It’s about having that history. Once you’ve got it, you’ll be treated the same as everyone else.
Do lenders see zero hours contractors as higher risk?
You are seen as higher risk, so that’s a factor that lenders are always going to be cautious of. They’re always going to want a little bit more proof than if you’re just employed on a permanent, full-time salary basis.
With some lenders, that history doesn’t even need to be with the same employer. You could have moved employers, still doing the same job. You might work through an agency… although agency work is probably a whole podcast in itself. But as long as you’ve got the 12 months history that’s going to be okay.
How do lenders assess income for someone on a zero hour contractor?
Once we’ve got that history, lenders will assess your income in the same way as everyone else. They will look at your yearly income and put that into their calculator. They work out what your net income will be and therefore how much you could afford to pay each month. That will give them a lending figure to offer you.
What impact does my professional role have on my mortgage eligibility?
Your professional role really doesn’t have any impact. They don’t discriminate whether you’re a nuclear physicist or you work in Sports Direct – although I’m not sure you’d have a zero hour contract if you’re a nuclear physicist.
It doesn’t doesn’t matter what you do or or who you work for – it’s about the history. As long as we could show that you’ve been doing it for long enough, that’s fine.
What documents do you need to be considered for a mortgage on a zero hour contract?
We’re probably just going to ask for more payslips. We’ll get your last three payslips, but then we’ll probably also get payslips from a year ago. Some lenders will want the full 12 months’ payslips.
Then they’ll work out whether you have had a few weeks where you haven’t been paid, or you’ve been away, or you haven’t been needed at work. They’ll take your yearly income. Depending on the time of year, we might look at a P60 – or your March pay slip will usually have your ‘year to date’ figure on it because it’s the end of the tax year.
The odd lender might want your contract, which will have dates on it. It’s nothing too complex.
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What other eligibility factors should I consider as a zero hour worker looking for a mortgage?
There are things like credit score and affordability. We’ll talk about affordability in a minute, but credit score is a good one and that’s the same for everyone.
There’s plenty of content on the site about adverse credit and credit history. That’s a factor, as it is for anyone else. How much you could borrow is based on affordability, which will be worked out in the same way as for everyone else, as long as you’ve got that employment history.
We will take your yearly income and multiply that up to work out how much you could borrow. That’s the only other eligibility factor other than time in employment for zero hour workers.
How much can I borrow when working on a zero hour or temporary contract?
Temporary contracts are probably slightly different, but for a zero hours worker how much you could borrow is the same as everyone else.
As a rough rule of thumb, you could usually borrow around four and a half times your income. But that only applies if you haven’t got too much other debt, or children or other factors. It’s a starting point, but not the same size fits all.
If you’ve got other credit commitments, that’s potentially going to reduce your borrowing amount. If you’ve got children, they are expensive, as a lot of us will know.
But you might have a partner whose income is not zero hours and that might outweigh all those things. It’s very much individual, and we’ll work it out in the same way as for everyone else.
Temporary contracts are slightly different. With temporary contracts, lenders are more nervous. If you just started a six month temporary contract we might struggle to find a lender for that – unless again you’ve got the history. If you have worked on temporary contracts for a year or more, that’s probably going to be okay.
Or, you might have done six months already and then you’ve got another six months extension. That would potentially work. But if this is your first temporary contract we might struggle.
How much deposit do I need if I’m on a zero hour contract?
It’s the same as everyone else – there’s no discrimination here. Ideally you need 10%. You could get a mortgage with 5% at the moment, but the rates are quite high. If you could do 10%, that’s great.
But you ccould absolutely get a mortgage with a 5% deposit. As long as you meet the zero hour contract criteria, it shouldn’t matter how much deposit you’ve got.
What if I’m a First Time Buyer? Can I still get a mortgage on a zero hour contract?
Yes, absolutely. The same rules apply. As long as you’ve got the history, it’s all good.
Can I use benefits as income when applying for a mortgage on a zero hour contract?
Yes. You could use benefit income on any mortgage. Perhaps this is a whole other podcast in itself, but benefit income is fine with certain lenders.
It’s sometimes called ‘unearned income,’ which includes benefits, tax credits, universal credit, maintenance and that sort of thing. If your unearned income is more than your earned income, some lenders are less keen and they won’t use all of it. They’ll only use a figure up to the same level as your earned income.
With some lenders that doesn’t apply, or they won’t use it at all. We could definitely use unearned income, but not to the same extent as normal employed income.
Is there anything you’d like to add before we come back with part two?
As we’ve seen here, there’s a few things to be aware of with zero hours contracts and a few lenders are often better than others.
So speaking to a mortgage broker is the way forward, because we know who to go to. We know the lenders that will be good and the lenders to avoid.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
The information contained within was correct at the time of publication but is subject to change.
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