Zero Hours Contract Mortgages

Zero Hours Contract Mortgages, or ZHC Mortgages, are home loan solutions for those without fixed working hours or a guaranteed income.

Presently, around 1.18 million individuals are engaged in zero-hours contracts in the UK. 

In the past two decades, these statistics have only increased, with over 995,000 more individuals adopting this form of employment contract since 2000. 

So, it’s safe to say that Zero Hours Contracts (ZHCs) have become increasingly common in the modern workforce, offering flexibility to both employers and employees. 

However, individuals on ZHCs may face unique challenges when it comes to securing a mortgage. 

Now, lenders may be apprehensive in approving such a mortgage request, just like in the case of part-time workers. 

Yet, getting a Zero Hours Contract Mortgage is not impossible, and in this article, we’ll be explaining all that you need to know about this financing option.

What Is Zero Hours Contract Mortgages?

There is no distinct mortgage exclusively designated as a “zero-hour contract mortgage.” So, it’s crucial to understand that there is no fundamental difference between a mortgage for individuals on zero-hour contracts and one for regular mortgages. 

However, the term “zero-hour contract mortgage” is simply used by lenders to describe the specific criteria for applicants employed under zero-hour contracts. 

This differentiation is essential when speaking of mortgages because the employment conditions of permanent workers and those on zero-hour contracts vary significantly.

The assessment of applicants differs because those on zero-hour contracts often lack job security with no guaranteed work or working hours. 

Consequently, lenders may perceive higher risks when extending loans, making it challenging to secure a mortgage.

Can You Get A Mortgage On a Zero-Hour Contract?

In the UK, obtaining a mortgage as a contractor, even when working under zero-hour contracts, is possible. 

As long as your income proves sufficient to meet the lenders requirements, and you can provide the necessary documentation as evidence, there are lenders who will consider your mortgage application.

Moreover, certain lenders understand that being on a zero-hour contract doesn’t necessarily equate to lower earnings compared to full-time employees, and it doesn’t diminish your eligibility for a mortgage. 

That said, many specialised mortgage lenders who may also cater for self-employed applicants are well-acquainted with the challenges that zero-hour contract workers face. They do not discriminate based on your employment type. 

Unfortunately, though, finding such lenders is a challenge without the assistance of a mortgage broker in many circumstances.

How To Get A Mortgage If You’re On A Zero-Hour Contract

Realistically, lenders may reject your mortgage request or offer one at a high interest rate, as they may consider you a high-risk borrower. So, you must convince them otherwise to bag a favourable deal and meet their lending criteria. 

Although you may have a zero-hour contract, there are various other aspects that mortgage providers consider when assessing your eligibility, as discussed below-

1. Your Role And Profession

Your occupation plays a pivotal role in determining your mortgage eligibility, particularly if your job requires specialised skills or qualifications. This shows the lender that you’re likely to find consistent work and have some degree of financial stability.

Notably, some lenders offer favourable terms to professionals in fields such as accountancy, teaching, or medicine, irrespective of their contract status.

2. Your Employment History

Your work history can also significantly influence your borrowing potential. Consistency in the same sector or with a single employer over an extended period can indicate job security and enhance your prospects. 

Conversely, a history of diverse roles across various industries, recent job changes, and gaps in employment may raise concerns for lenders.

Depending on your situation, some lenders may require applicants to have maintained the same job for at least 12 months, have 12 months of experience in contract work or finally 12 months in a similar line of work/industry experience. 

3. Your Ability To Prove Steady Earnings

The way you present your financial information can be a game-changer. While declaring your annual income to a potential mortgage provider is a good start, tangible proof is essential.

To showcase your actual financial capacity, you may need to provide up to twelve months of bank statements, payslips, and previous P60s alongside your application. 

This documentation substantiates your financial stability and repayment capability, making you a more reliable prospect to lenders.

What Other Factors Can Influence Your Eligibility?

While it is recommended to consider lenders specialising in mortgages for zero-hour contract workers, you might still meet the requirements for a standard mortgage from a mainstream lender. 

That’s because every mortgage provider follows a unique set of criteria, and the assessment of your eligibility can vary significantly. 

So, depending on your specific situation, there may be other, more relevant factors that can influence your compatibility with a particular lender.

How Much Can You Borrow When Applying For Zero Hours Contract Mortgage?

Mortgage lenders in the UK typically determine your borrowing capacity by multiplying your annual earnings by any number between 4.5 and 5.5 and then use ons data and your own committed expenditure . But without any regular income, this calculation becomes tricky. 

Hence, different lenders have different approaches to calculating your income, some of which are as follows-

• Computing the average of your income from the last two or three years, as indicated by your P60 or tax return
• Averaging your income from the last six months and then extrapolating it to an annual amount
• Summing up the earnings from your payslips over the preceding 12 months
• Utilising the annual income figure from your most recent P60

Note that the aforementioned methods are likely to yield differing results for individuals with fluctuating monthly incomes. Consequently, the choice of calculation employed by a lender directly influences the amount you can borrow. 

The real challenge lies in identifying which calculation option maximises your borrowing capacity and identifying lenders who adopt that specific method. An experienced broker will massively help in this regard. 

How Much Do You Need To Deposit?

Nowadays, it’s common among lenders to extend mortgages that cover as much as 95% of the property value. However, when you’re employed on a zero-hour contract, lenders tend to adopt a more cautious approach.

Some may limit their lending to 80% of the property value, while others cap it at 75%. Needless to say, this necessitates a significantly larger deposit on your part. 

While securing a mortgage with a 5-10% is not impossible, finding an appropriate lender willing to accommodate your circumstances can become a challenge.

Can Having A Poor Credit Score Affect Your Application For a Zero-hour Contract Mortgage?

A poor credit score can pose challenges for zero-hour contract workers seeking mortgages. While specialist bad credit mortgage providers exist, they may view your application as a risky one.

Some lenders, regardless of employment type, reject applicants with bad credit, while others may limit borrowing amounts or impose extra conditions based on individual circumstances. 

However, eligibility often depends on the severity, recency, and context of the bad credit report. External factors like job security and deposit size may also influence lending decisions.

Does Your Age Matter While Applying For Zero-hours Contract Mortgages?

Mortgage providers may perceive both younger and older borrowers as high-risk applicants, leading to age restrictions. Typically, lenders set an upper limit in terms of age for completing a new mortgage application and a maximum age in which the mortgage must be repaid.

Similarly, for zero-hour contract mortgages, some lenders may establish minimum age requirements, with most requiring applicants to be over 21 years old to allow time for building a credit history and becoming more experienced.

Conclusion 

Clearly, zero-hour contract mortgages present unique challenges for people seeking financing solutions for buying their dream home.

While these employment agreements can be viewed as high risk by traditional lenders, there are specialised options available to accommodate those on zero-hour contracts. 

By considering factors such as employment history, type of profession, and the ability to demonstrate earnings, borrowers can certainly enhance their eligibility.

However, we highly recommend getting in touch with a broker or financial advisor to explore a range of lenders, each with their own criteria. Remember – it’s all about careful planning, and soon, you will be a proud owner of your home sweet home!

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.