Worried about getting a mortgage on a fixed-term contract? Don’t fret, we help you find lenders who are happy to provide temporary contract-based mortgages.
When applying for a mortgage, your income is one of the most important factors that lenders consider in determining your eligibility for a loan. They often prefer applicants with stable, long-term employment because it easily proves that the borrower can most likely meet their mortgage payments. But don’t let this worry you if you have a fixed-term contract, it won’t prevent you from getting a mortgage.
Can I get a mortgage as an agency worker?
Yes, it is possible to get an agency worker mortgage. While your income isn’t as predictable as an employed worker’s might be, this shouldn’t stop you from securing a mortgage – and a rung on the property ladder.
The unpredictability can mean that lenders see you as more of a risk, though. You’ll need to prove you can meet your repayments despite your fluctuation in income.
What is a fixed-term contract work mortgage?
A fixed-term contract work mortgage is a type of loan designed specifically for those whose income comes from fixed-term employment contracts rather than traditional permanent employment. The work is temporary and has a predetermined end date. These contracts may be used for various reasons, including project-based work or seasonal employment.
Unlike those with permanent contracts – which have no set end date and are typically ongoing – the nature of your employment contract can throw a few obstacles into your mortgage application process.
The good news is that there are lenders who offer mortgages with specialised terms and eligibility criteria to accommodate the income variability associated with fixed-term contracts. They assess your income stability, creditworthiness, and ability to meet mortgage payments throughout the contract's duration.
Difference between an agency worker and a contractor
The main difference between a contractor and an agency worker is that a temporary agency worker is usually employed by a client for a set period of time and paid through their payroll.
A contractor, on the other hand, can be a number of things. You could be a self-employed contractor or you could be paid through an umbrella company. But the common denominator is that there is no employee/employer dynamic involved. A contractor completes a project for an agreed fee, over an agreed period.
Challenges when applying for a mortgage
The challenges you’ll face when applying for a mortgage as a contract worker stem from the amount of risk you pose for the lender. The higher risk you are, the less inclined they’ll feel to lend to you.
Here are a few things they’ll be looking at very closely when determining your eligibility and level of risk:
Income verification
Lenders will typically request documentation to prove your income. They’ll want to see evidence of your income history, so be prepared to provide payslips, employment contracts, tax returns, and bank statements to demonstrate your earning capacity.
Contract duration
The duration of your fixed-term contract matters. Lenders may assess whether your contract is long enough to cover the mortgage term you’re after, and if your contract is relatively short or close to its end date, they could question how you’ll pay the mortgage payments in the future. A contract of a reasonable length and possibility of renewal will work in your favour.
Employment history
Your employment history can also influence your mortgage application. If the time between your contracts is relatively short, this is likely to be viewed more positively by lenders. Additionally, if you have a strong industry track record or specialised skills that make you highly employable, it can boost your chances of securing a mortgage.
Affordability
Lenders assess your ability to afford the mortgage repayments based on your income and expenses. Be prepared to provide a detailed breakdown of your financial situation, including any other sources of income and existing debts.
Can you still get a mortgage on a fixed-term contract?
Yes, it is still possible, although it can be more challenging. Here are some ways to boost your application when getting a mortgage on a fixed-term contract.Build a strong financial profile.
Maintain a good credit score by paying bills and debts on time, reducing outstanding debts, and saving for a larger deposit to reduce your loan-to-value (LTV) ratio.
Choose the right lender.
Some lenders are more flexible than others when it comes to fixed-term contracts, even offering mortgage products with different eligibility criteria. A mortgage broker with experience working with clients on fixed-term contracts can help you identify lenders that are more likely to approve your application.
Provide evidence of your income.
Include payslips, employment contracts, and bank statements. If you receive any bonuses or additional income, be sure to document and include it in your application.
Showcase the best of your employment history.
Be sure to mention any previous fixed-term contracts that were renewed or extended. If you have a history of transitioning smoothly from one contract to another, emphasise this! And if you can provide references from your current employer, even better.
Work on your future employment history.
If your current contract is near expiration, discuss the possibility of renewal or extension with your employer.
Speak to a specialist mortgage adviser.
A mortgage broker who specialises in non-standard employment arrangements can provide valuable guidance tailored to your situation. With their help, you can explore specialist mortgage products designed for people on fixed-term contracts, which may even have more lenient criteria.
Create a budget.
Show how you'll manage mortgage payments along with other financial obligations. Be prepared to explain how you'll cover the mortgage if your contract isn't renewed.
Get pre-approved before you shop
Consider getting pre-approved for a mortgage before actively house hunting. This gives you a clearer idea of your budget and shows sellers that you're a serious buyer.
It may take time to find a lender willing to work with you on a fixed-term contract, so don't get discouraged if you face initial rejections. Your mortgage broker can help you go through the process smoothly.
Can I get a contract worker mortgage if I have bad credit?
Yes, while you might have to make a bit more effort to prove your affordability and trustworthiness to lenders, it is possible to get a mortgage as a contractor with bad credit.
A specialist mortgage advisor can help you find a lender who will weigh up your circumstances on a case-by-case basis.
How much can I borrow if I have a fixed-term contract?
The amount you can borrow for a mortgage depends on various factors, including your income, expenses, creditworthiness, and the lender's criteria. While there's no fixed answer, lenders typically use certain guidelines to determine how much they're willing to lend.
One common approach is to multiply your annual income by 4.5 or even up to 5 times your salary to determine the maximum mortgage amount you can qualify for. But it’s worth noting that this is a simplified rule of thumb and doesn't take into account all the intricacies of your financial situation.
Lenders will also consider other factors, such as your credit score, existing debts, monthly expenses, and the loan-to-value ratio (LTV). Your LTV is the percentage of the property's value that you want to borrow. Typically, the lower your LTV, the more you can borrow.
To get a more accurate estimate of how much you can borrow, speak with a mortgage broker. They can assess your specific financial situation, consider all relevant factors, and provide you with a more precise figure. Finally, keep in mind that responsible borrowing involves not maxing out your borrowing capacity but rather borrowing an amount that you can comfortably afford to repay without financial strain.
Speak to The Mortgage Hut
Our mortgage advisors have a wealth of experience in non-standard employment situations that mean they provide valuable guidance.
We have established relationships with a wide range of lenders, including those who specialise in working with borrowers on fixed-term contracts, so we can connect you with one who is more accommodating to your situation.
We also guide you through the entire mortgage application process, helping you complete paperwork accurately and efficiently. We know what documents are needed and how to present your financial information to give your application a fighting chance.
We can even negotiate with lenders on your behalf to secure the most favourable terms and interest rates for your agency worker mortgage or fixed-contract mortgage. Simply speak to a member of our team to get started!
FAQs
1. Can I get a mortgage on a fixed-term contract?
Yes, it's possible to get a mortgage on a fixed-term contract, but it may be more challenging than if you had a permanent contract.
2. What factors do lenders consider for mortgage eligibility?
Lenders consider factors like your income, contract duration, employment history, creditworthiness, and affordability.
3. How can I improve my mortgage eligibility on a fixed-term contract?
Improve your chances by maintaining a strong credit score, demonstrating income stability, saving for a larger deposit and consulting with mortgage advisers.
4. What's the typical income multiplier used by lenders for fixed-term contracts?
Lenders often use a multiplier of 4.5 to 5 times your annual salary, but this can vary depending on the lender and your circumstances.
5. Should I consider specialist mortgage products for fixed-term contracts?
Yes, explore specialist products designed for fixed-term contract workers, as they may have more flexible criteria.
6. Are government schemes available for fixed-term contract workers?
Look into government-backed schemes Shared Ownership which can offer accessible mortgage options.
7. Is it necessary to consult with a mortgage adviser?
While not mandatory, consulting with a mortgage adviser experienced in agency or temporary contracts can certainly make the process much easier.
8. How long should my fixed-term contract be for mortgage approval?
A longer contract duration is generally more favourable, but some lenders may consider shorter contracts, especially if they're renewable.
9. What's the importance of a stable employment history?
A stable employment history with minimal gaps between contracts can boost your mortgage eligibility.
10. Can I apply for a mortgage with a fixed-term contract if I'm self-employed?
Yes, self-employed individuals on fixed-term contracts can apply for mortgages, but they may have to provide additional documentation of their income and business stability.
