Getting a Mortgage on a Fixed Term Employment Contract
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Getting a Mortgage on a Fixed Term Employment Contract (Part 1)
Gary Boakes talks us through getting a mortgage on a fixed term employment contract
How does a mortgage on a fixed term contract differ from a standard mortgage?
The mortgage itself is the same – the types of products and lenders are all fairly standard. What’s different is the criteria for fixed term contracts. That does differ from lender to lender, and it’s more specific.
That’s the only thing that makes it different from a standard mortgage – the criteria side.
What documentation do I need to provide as proof of income when applying for a mortgage with a fixed term employment contract?
This will vary from lender to lender. Generally, with a fixed term contract you’ll need your current, signed contract. It may well be that we need to see the previous contract as well.
Bank statements are always a necessity and so are payslips if you receive them. You may do invoicing as well, in which case some lenders will ask for those.
That’s the advantage of using brokers – we will have the basic information to give to lenders on your behalf. Depending on the lender we pick for you based on your circumstances, we might potentially need a little more information from you.
What costs are associated with getting professional advice for a fixed term contract mortgage?
The great news is that we don’t charge an advice fee for what we do. We’re purely paid by the lender on completion. So for our recommendation and service there is no cost whatsoever.
In terms of other costs, there will be the standard mortgage costs that you get with a product.
What income proofs are required for employed applicants when seeking a mortgage?
With employed applicants we always ask for a standard set of documentation which is three month’s payslips and three months’ bank statements. It may well be that we require more bank statements if you’ve got bonuses there.
We may need your P60, again it depends on the lender and your set of circumstances. There’s often more to do if you have additional income.
What kind of mortgage advice is available to those seeking a mortgage on a fixed term contract?
It’s become a lot easier over the last few years because lenders have adapted to the way that people are now working. It’s a lot more common now to do contract work. There are many more temporary people in retail, for example, and other industries.
The good news is the advice and how we work doesn’t really differ. We will look at your circumstances, your income and your expenditure. Your type of contract and the length of it is important, but we would just treat you like any other applicant and recommend the most suitable mortgage for your set of circumstances.
How does the length of your current contract impact your eligibility for a fixed term contract mortgage?
This is the important one. Again this does differ from lender to lender – some lenders would require you to have been in an initial fixed term contract for maybe 12 months, and then ongoing contracts after that.
But some providers and lenders would simply accept you with six or 12 months left on a contract. We’ve even got some that will give you a mortgage three months before a contract even starts, as long as it’s for a certain length of time.
Again, that’s why a broker is really important for contractors. We will have that information to hand. By looking at your specific situation we will find you the most suitable lender.
Are there any specific income proof requirements for self-employed applicants?
Self-employed contractors fit into two categories. You might be a sole trader or have a limited company. If you’re a limited company director, we look at your income in terms of salary and dividends point of view. That would require your tax computations and tax year overviews.
However, we also can look at the net profit of the business as well as your salary. We would require your business accounts to assess that.
If you are a sole trader, we would need your tax computations and tax year overviews for the last two years.
What should you do to improve your chances of getting a mortgage while you’re on a fixed term contract?
Nothing beyond the standard things we would tell everyone. Examples are to make sure that you’re maintaining a good credit score and try to keep your expenditure as low as you can.
I know it’s not easy, but if you can, look to clear credit cards or loans. With fixed term contractors, sometimes the timing can make a difference. If you’re coming towards the end of a contract and you’re not too sure where your next contract’s going to be, it may not be the best timing to get a mortgage.
We will look at those circumstances with you. But the advice we always give everyone is that the credit score is key, so look after it. If you don’t know what your score is, there are plenty of credit agencies out there. They can give you a good idea of what your credit record looks like.
Are there any additional steps I need to take when applying for a mortgage on a fixed term employment contract?
Make sure that you have a signed contract. We receive a lot of contracts where only one party has signed it. We then have to also get the other party to sign. It’s easier if it’s just the applicant, but we have received contracts in the past that haven’t been signed by the employer.
Apart from that it’s just having that documentation available and having everything else ready – your bank statements, your ID etc.
What deposit do you need for a fixed term contract mortgage?
They’re standard mortgages – it is just a different element of criteria, so just like anyone else you can have as little as a 5% deposit. That goes up to 10%, 15%, 20% deposit – whatever you have available. You don’t have to have a different minimum deposit as a fixed term contractor.
Is it possible to get a re-mortgage on a fixed term contract?
It’s exactly the same as a purchase. We would go to the lenders that are right for your circumstances and your fixed term contract. A remortgage is no different to a purchase in terms of how we do it.
How would someone go about talking to a lender regarding their mortgage application?
In an ideal world you won’t need to speak to a lender. If you’re using a broker like us, it’s our job to communicate everything to a lender on your behalf. We will do the credit score and the application and chase everything through to an offer. At no point should you need to speak to a lender regarding your mortgage.
How can I increase my chances of getting a mortgage on a fixed term employment contract?
Again, it’s no different from a standard mortgage. It’s all about whether you have a good credit score and your income versus expenditure. To enhance your chances of getting the type of mortgage you want, can you improve your income? If your expenditure is high, how can you lower it? They are the key things to look at.
How long should you be in your current job or agency before applying for a mortgage?
If you’re a temporary worker or a zero hour contractor, the majority of lenders are going to want you to have a 12 month contract plus 12 months contracting history. That could differ depending on the type of profession you’re in.
It could well be that you actually haven’t even started your fixed term contract. But as long as that’s got a good length – say 6 to 12 months – there are lenders that would accept that straight away.
How do you go about getting a mortgage when you’re on a fixed term contract?
Speak to a broker – we will go through all that with you. We’ll review what type of fixed term contract you’re on, how long you’ve got left, how long you’ve been contracting for and then we recommend a mortgage based on those circumstances.
What is the role of a mortgage broker in helping individuals on fixed term contracts secure a mortgage?
The criteria differs so much from lender to lender, so the massive advantage of a mortgage broker is that we do the legwork for you. We go out and spend that time speaking to business development managers with those lenders.
There will be fixed term contracts that sometimes don’t fit criteria, but because of the type of profession, they will look at it differently. That’s all the research and legwork that we will do on your behalf to ensure we’re getting you the most suitable mortgage for your circumstances.
For any fixed term contractors not in a permanent employment role, always speak to a specialist that knows what they’re doing – it will take all the stress out of a potentially complex situation.
Your home may be repossessed if you do not keep up with your mortgage repayments.
How we can help you
- We are a fee free mortgage brokerage. We do not charge our customers for any advice – we are purely paid by the lender on completion.
- We work with dozens of lenders including the high street banks and can compare their deals for you, always with your best interest at heart.
- We take away the stress and uncertainty of applying directly with a lender who may not have the most suitable deal for you.
Get in touch for a quick informal chat to discuss your options.
Getting a Mortgage on a Fixed Term Employment Contract (Part 2)
We continue the conversation about getting a mortgage on a fixed term employment contract with Gary Boakes.
How do lenders view fixed term employment contracts when applying for a mortgage?
It depends on the lender – and some lenders really like them and have really good criteria for them. It’s certainly an area that makes them different from other lenders.
Other lenders find them a little bit more risky, so their criteria may be more restrictive. Because it really varies from lender to lender, that’s where we come into play – we’ll be able to guide you to the right lender and the most suitable mortgage based on your type of fixed term contract.
What is the duration of a Mortgage in Principle?
Technically, it’s three months. It’s an odd one actually, because an Agreement in Principle is really only as good as the day that you do it, because the lender may well change their criteria the next day, or their affordability rules.
You could change your circumstances too. You could get an Agreement in Principle done one day and a month later you’ve taken out a car loan, so it might not ultimately be valid.
What they are good for is to know that you are creditworthy and there is a lender out there for you. They’re also very good for estate agents, to show you are a valid buyer when you make an offer on a property.
So while an Agreement in Principle lasts three months, a lot can change in the market. We’ll guide our customers through that. We’ll do an Agreement in Principle where we feel it’s needed. Ideally the only Agreement in Principle we like to do is for the mortgage we’ve recommended for you.
Do you need to have an existing contract extension to be approved for a fixed term contract mortgage?
Again, it depends on the lender. Some lenders would like you to have been in a contract for a year and then have another extension going forward. Some will be prepared to take you before you’ve even started the contract, as long as it is of a certain length.
The criteria varies widely for fixed term contractors in terms of contract length and extensions. Your previous history is also important. If you’ve been contracting for 10 years that’s very different to lenders from someone that’s just done it for six months.
What eligibility criteria do lenders take into consideration when approving a fixed term contract mortgage?
Length of contract, start date, end of the contract, type of employment are all factors. Some lenders specialise in IT contractors and have different criteria for them compared with normal fixed term contracts. That can really play a part depending on what your contract looks like.
Your eligibility criteria isn’t any different from anybody else’s – it’s going to be based on your credit score, your income, expenditure and the deposit you have available.
What steps should you take when preparing for a mortgage application on a fixed term contract?
The biggest one is actually having a signed contract. We do receive a lot of contracts that haven’t been signed by the customer or they’ve been done electronically with a little note at the bottom. But most lenders like to see two physical signatures on the contract, so it saves time if you have that ready.
Timing can also be important – if you are potentially coming to the end of a contract and you haven’t got anything else lined up, that might not be the right time to apply for a mortgage.
You should also see what your credit score looks like – get a credit report. Look for opportunities to reduce your expenditure, check if you are on the electoral roll – things like that help make yourself look better to a lender.
How long does the mortgage application process take for those with fixed term employment contracts?
It shouldn’t be any longer than for anyone else, as long as we have all the information upfront. Your application will be put in a queue as it does with any normal application and come out the other end between one to three weeks later, depending on the lender and how busy they are.
What is considered unacceptable employment income when applying for a mortgage?
This can also differ from lender to lender. An example is child benefit – some lenders will include it, some won’t. WIth employment income, if someone’s on a secondment and has a temporary pay rise, lenders generally won’t accept that, especially if you’re going to return to your previous pay in six months or a year.
They won’t allow for expenses, petrol, lunch allowances etc. Anything that isn’t long term or anything that can change will raise questions. Again we will be able to go through all that with you. We’ll look at your payslips and use what we can.
Is there a difference in how much temporary workers can borrow, compared to permanent employees? Are there any options for temporary workers who need a mortgage?
In the majority of instances, lenders like you to have been temping for at least 12 months. In terms of how much you can borrow, your income is what it is, and that will be used as it would be for someone permanent. You’re not disadvantaged, affordability-wise. But as a temporary worker, you may need to have done it for longer.
It may also mean we need a lot more paperwork for you. Many lenders request 12 months of payslips, so if you’re getting paid weekly, that’s unfortunately a lot of payslips to find.
What are some of the common issues faced by temporary workers while securing their mortgage?
One issue we come across is how long you’ve been temping for. As we mentioned, you generally need to have temped for 12 months. It can also be tricky if you have several roles – if you are working six or seven temporary jobs, lenders may not like that.
Another issue can be gaps. If you’ve been in a temporary role and then there’s a gap of two months before the next role, that may well be seen as a new role – and you would need another 12 months’ track record. Again, it does differ by lender and that’s where we’ll be able to help.
What is the impact of having a proven track record when applying for a mortgage on a fixed term contract?
A proven track record makes things a lot easier. If you have a history of temping, or a history of fixed term contracts, and that’s been the main way that you have worked over a good few years, that’s what lenders want to see.
They like that longevity – that what you’re doing isn’t just a stopgap. There are many industries where you can make more money as a fixed time contractor and in temporary work. So there’s a really good reason why people do it.
There’s no reason why a permanent employee can’t leave their job tomorrow, so in reality, is it any more secure? It’s just the term ‘permanent’ that reassures lenders, compared to the word ‘temporary’.
Generally the longer you have been working on contracts, the better and the easier it will be for you.
Can people with indefinite leave to remain in the UK get a fixed term contract mortgage?
People with indefinite leave to remain are no different from a UK citizen for a mortgage, so lenders are generally going to be absolutely fine with you. It doesn’t really matter what type of employment you have.
If you don’t have indefinite leave to remain, the criteria is different. It may well be that you need a larger deposit – typically up to 25% deposit, which is obviously quite high. We have known lenders do something at 10% depending on the circumstances.
What are some of the challenges faced by individuals on fixed term contracts when attempting to get a mortgage?
The main challenges are the length of contract when you start, your contracting history and how long you’ve got left. But there are options out there for most people in fixed term contracts.
We have this big pool of lenders and once you start looking at specific circumstances such as fixed term contracts, you start losing lenders from that pool. But ultimately we only need one lender that’s going to give you an affordable rate.
We’ve recently done a mortgage for someone that hasn’t even started their fixed term contract yet. Because the contract was for over 12 months, the lender was actually willing to take them on – three months before they even started.
What income criteria do lenders consider when reviewing mortgage applications?
How lenders calculate the maximum borrowing amount is slightly different for fixed term contracting.
Some will work it out over a certain amount of weeks rather than the whole year. It may well be that you work 52 weeks a year on your contract, but the lender will assume you take holidays – so they may actually work out your actual yearly figures based on a 46 week period.
So for day rate contractors, lenders differ in terms of how they assess income. As soon as we’ve established what income they’re willing to use, then the type of borrowing is no different from someone that’s employed: it’s about income, expenditure, credit score and deposit.
How does classifying an employment contract as fixed term impact one’s ability to secure a mortgage?
Lenders want to know what that contract looks like in terms of start date, end date and what the figure’s going to be. Lenders interpret that information very differently. We look at that information, what your income is and which lenders will use it the most favourably. From then on, it’s no different from an application with someone that’s employed.
What tips would you give to someone looking to secure a mortgage whilst on a fixed term contract?
The key is to speak to a mortgage broker as soon as possible. Lenders look at fixed term contracts very differently. You might go to your own bank and they may not be willing to do it, or they look at your income differently.
Someone like ourselves can look at the market for you and basically find the most suitable lender for your circumstances.
Other tips are as normal, really, it’s just ensuring your credit score is good – and if you’re able to pay off any loans or credit cards, that will work in your favour. A little extra deposit can be very helpful, again whether you’re on a permanent contract or fixed term contract.
With first time contracts there’s a bit of a stigma or a myth, a bit like self-employment, that it’s harder to get a mortgage. But it isn’t the case. Lenders do cater for you and some absolutely love this fixed term contractors – it’s what makes them different from other providers.
Let us help. Let us do the legwork for you and save you time and money – that’s the biggest tip I can give.
Your home may be repossessed if you do not keep up with your mortgage repayments.
How we can help you
- We are a fee free mortgage brokerage. We do not charge our customers for any advice – we are purely paid by the lender on completion.
- We work with dozens of lenders including the high street banks and can compare their deals for you, always with your best interest at heart.
- We take away the stress and uncertainty of applying directly with a lender who may not have the most suitable deal for you.
Get in touch for a quick informal chat to discuss your options.
Getting a mortgage on a fixed term employment contract
(Part 3)
The final part of our podcast series on getting a mortgage on a fixed term employment contract with Gary Boakes.
What kind of interest rates can I expect on a mortgage if I have a fixed term employment contract?
There are no specific interest rates for someone on fixed term contracts. With a fixed term contract mortgage, it’s the criteria around the mortgage you’re going for that are important.
The good news is that you’re not hindered in any way – you’ll get the exactly the same rates as someone that’s employed. Whether that’s good or bad will depend on the market and your circumstances at the time.
A lot of people looking for contractor mortgages are on a day rate. They’re not employed. They might be on a 12 month contract and they move from job to job. Some lenders are really comfortable with that, and others don’t like it.
It’s all about coming to a broker and talking through your set of circumstances: the contracts you run with, your day rate, whether you do temporary agency work. We will work together to find the right mortgage for you. Every lender has their own criteria which is what makes them different – and that’s really good for customers.
Will gaps in work history negatively impact my chances of getting a fixed term contract mortgage?
It can in some instances. We do often get asked by the lenders whether there is more than a six week gap. That’s the case with the majority of mortgage providers. They don’t mind gaps. They understand that people have time off but they don’t generally want longer than six weeks.
That can change depending on your next contract. There’s a lot to take into account. It’s very helpful if the next contract is more long-term, ideally more than a year, if there has been a longer gap.
With fixed term contracts we need to look at not just at your current role but also previous ones. The history’s important, what gaps there are, plus the new contract. There’s a lot more to research and sometimes work gaps can negatively impact your application.
Can getting a guarantor help with obtaining a mortgage on a fixed term contract?
What we generally would call a guarantor mortgage now is a Joint Borrower Sole Proprietor mortgage. The idea here is that you can get a mortgage with a parent or a sibling, but they’re not named on the property deeds.
This type of mortgage is used to boost affordability. They can help, depending on the situation. They’re not for everyone. They’re really good in some circumstances and less useful in others.
If it’s something you’re thinking about, give us a call. We’ll talk it through and see whether or not your set of circumstances is right for those types of mortgages.
What can affect the amount you can borrow on a fixed term contract?
Factors that can affect what you can borrow include whether you’re on a fixed term contract, whether you’re self-employed, whether you’re on a contract or you’re permanent.
It all comes down to your affordability. Lenders look at your income and other factors like loans, credit cards, your credit score and the type of deposit you’ve got. If you’ve got a bigger deposit, you may well be able to borrow more than someone on 95% Loan to Value.
Children and childcare costs are other factors that need to be taken into account. This isn’t just a fixed term contract issue. It is true for anyone. It’s all based on affordability: income and expenditure – we will review that for our customers to get them the maximum they can afford.
What are some of the things to keep in mind when applying for a mortgage if this is your first job?
If it is your first job it’s not as much of a hindrance as people think. Let’s say for instance you’ve just left university and taken your first job – how the lender’s going to look at you?
They will just look at your circumstances, the type of role you’re going into, the income you receive from that and they base their risk and your affordability on that.
Whether it’s your first job or your 20th, you’re generally looked at in a similar way by most lenders.
Can you change jobs after being approved for a mortgage on a fixed term contract?
We have to let lenders know of any major material changes. If you do change jobs we need to let the lenders know. If you were on a certain income and that’s now reduced in a different job, that will have a negative impact.
We’ve had a few times in the past where it’s taken too long for a property sale to go through and an opportunity has come up with the client’s work. We’ve had phone calls asking what to do. We have to discuss it with you because obviously you don’t want to reduce your salary and be on a higher mortgage than you can afford.
It is a material change. It is really important. We do need to review the situation to see whether or not it is still viable for you going forward. Hopefully you’re enhancing your salary so it shouldn’t be any problem anyway. But if your pay is going down, that could have a big impact.
How do brokers that specialise in fixed term contract mortgages differ from traditional brokers?
Any traditional mortgage broker can do fixed term contract mortgages. It’s the same whether or not you’re self-employed, whether or not you’re on a Tier Two Visa… we can generally all do the same.
The real difference when we specialise in certain areas is our knowledge of the lenders. We know where we can go. We can answer questions quickly. We can reassure our clients. It’s just knowing the criteria of the lenders – we can access the information quickly and that’s the benefit. But in theory, we can all do the same thing.
Are there any special mortgage products for those with fixed term employment contracts?
Generally not. The fixed term contract element is about lender criteria. Each lender will have set criteria for fixed time contractors, the self-employed, temporary workers and employed people.
So it’s more about finding the lenders who are good for the specific type of client, rather than specific products. If you go to Halifax for example, whether you’re employed, a fixed term contractor or self-employed, you are all eligible for the same product. It’s just the criteria underneath that will be different for all three.
Can you explain about the different types of property surveys?
Your basic valuation is done via the lender and is generally free. The lender basically wants to make sure that the property exists and what you’re paying for it is what it’s worth. It’s about having that security in place – so if people do not pay their mortgage and unfortunately the lender has to repossess the house, they are going to get their money back.
That basic valuation does protect the buyer – you want to know you’re paying the right price to that property based on the market.
Another option is what we call a Home Buyers Report or Stage Two Survey. That’s more like a condition report on the property. The surveyor would spend a couple of hours at the property looking at different elements. They’ll look at the roof, your fascias, the windows, the walls. It usually comes with a red/amber/green rating. Things that are in good order will be rated green, while things that need replacing will be red. If you’ll be OK for a couple of years it’s amber – it’s nice and simple. The cost for that is more expensive than the basic valuation.
Then you have the full structural survey. On this one you would have legal comeback – it’s very detailed. The surveyor will spend a good half day to a day at the property looking at every aspect of it. Then there’ll be a big report telling you everything you need to know about the property. The costs can vary dramatically on those.
There’s a lot of information online on this. It’s hard for us to recommend because ultimately we’ve not been in the house. We can only guide people on what they potentially can do.
It’s down to the buyer to determine which they feel is right for the property, their risk appetite and what they’re willing to pay to know about the property.
How can individuals on low incomes improve their chances of getting a mortgage on a fixed term contract?
It’s the same whether you have a low income or a high one. Ultimately you’ve got to have a good credit score. Try to reduce your expenditure compared to your income – more important when you are on a lower income. Any element of expense will have a bigger impact than for people on higher incomes.
It also depends on the location. The majority of people can get a mortgage, it’s just whether or not that mortgage is right for the area where they live. Buying in London compared to buying in the North East, the type of properties you’ll get are very different.
People sometimes worry that they have low incomes and they can’t buy a home – but Shared Ownership schemes might be able to help with that.
It may well be that you have a low income but you have a really good deposit. Again, it’s about the type of mortgage you need. Speak to a broker and we will assess your situation and tell you what you can and can’t do.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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