Getting on the property ladder can feel like a daunting task when your employment situation falls outside the traditional full-time role. Whether you’re a contractor, on a fixed-term contract, working through an agency, or employed on a zero-hour basis, it’s important to know that securing a mortgage is possible – and there are options tailored specifically for your needs.
In this guide, we’ll break down the different employment types and explain how they can affect your mortgage application, while offering practical advice for each situation.
Contractor Mortgages
Being a contractor can offer flexibility and often higher earnings, but it also brings an element of unpredictability. Lenders are generally happy to work with contractors, but their requirements can be a little stricter. They typically want to see a solid track record of contracts to assess your reliability as a borrower.
Here’s what can help:
- Contract Length: Lenders will often require proof of at least six to twelve months of contracted work, as well as evidence that you have future contracts lined up.
- Income Stability: Rather than looking at one year of earnings, most lenders will average your income over two to three years. Keeping detailed records of invoices and bank statements is key here.
- Day Rate Calculations: Some lenders will calculate your affordability based on your day rate, multiplying it by the number of working days in a year, usually 46-48 weeks. This approach can sometimes work in your favour, depending on your day rate and workload.
CIS (Construction Industry Scheme) Mortgages
The Construction Industry Scheme (CIS) is a common employment structure for those working in construction. If you’re paid under the CIS, you might think it’s harder to get a mortgage, but the reality is that many lenders offer specific mortgage products for CIS workers.
Things to keep in mind:
- Proof of Income: You’ll need to show your CIS payslips to demonstrate your earnings. Many lenders will accept just six months of payslips, which can be beneficial if you’re newer to the industry.
- Gross Income Consideration: Some lenders will base their mortgage calculations on your gross income (pre-tax), which can make it easier to borrow more.
- Tax Returns: You may also be asked for your self-assessment tax returns. Keep these up-to-date and accurate, as they can be a crucial part of your mortgage application.
Agency Workers and Fixed-Term Contracts
If you’re employed on a fixed-term contract or working through an agency, your income is still considered, but lenders will want to see evidence of regular earnings. The length of time you’ve been in this kind of employment, and the likelihood of future work, are key factors.
Here’s how to prepare:
- History of Work: Ideally, lenders like to see at least two years of continuous employment in your current role or industry. However, some may accept 12 months or less, depending on the strength of your overall application.
- Future Contracts: Showing that you have a renewal or a future contract in place can boost your application, as it reassures lenders of your income continuity.
- Agency Employment: If you’re working through an agency, regular payslips and a proven track record are essential. Lenders may require you to have been with the same agency for at least 12 months, though some will accept six months.
Zero-Hour Contract Mortgages
Zero-hour contracts can be tricky when applying for a mortgage due to the inconsistent income, but they are not an automatic barrier. Many lenders are willing to work with applicants on zero-hour contracts, especially if you can show that your earnings are consistent over time.
To strengthen your application:
- Income Evidence: You’ll need to demonstrate regular work and earnings over a longer period, typically two years. This shows lenders that you are capable of maintaining steady income, despite the nature of your contract.
- Multiple Jobs: If you’re working several zero-hour jobs, combine the earnings from all your roles. Lenders will take this into account when calculating affordability.
- Bank Statements: Provide detailed bank statements that reflect your income stability. Regular payments into your account will help reassure lenders that your work pattern is reliable.
Freelancers and Self-Employed Mortgages
Freelancers and self-employed individuals often face challenges when applying for mortgages due to income variability. However, many lenders are increasingly understanding of self-employed income and are willing to consider applications based on a solid financial history.
Tips for freelancers and the self-employed:
- Tax Returns and Accounts: Lenders will want to see at least two to three years of tax returns or certified accounts. These documents are critical in proving your income stability.
- Use an Accountant: Having your accounts prepared by a qualified accountant can make your application look more professional and trustworthy. It also ensures that your financial documents are accurate and compliant.
- Retained Profits and Dividends: Some lenders will consider retained profits and dividends when calculating your income. If your business is profitable, this can increase your borrowing potential.
General Tips for All Employment Types
- Deposit: Having a larger deposit will always work in your favour, regardless of your employment type. A higher deposit can reduce the risk for lenders and improve your chances of getting approved. Aim for at least a 10-20% deposit to strengthen your application.
- Credit Score: Your credit score plays a major role in determining your mortgage eligibility. Make sure your credit report is up-to-date and free from errors. Pay off any outstanding debts where possible, and avoid taking on new credit in the months leading up to your application.
- Specialist Lenders: Mainstream lenders might be cautious about lending to those in non-traditional employment, but there are plenty of specialist lenders who offer flexible criteria for contractors, agency workers, CIS employees, and those on fixed-term or zero-hour contracts. A mortgage broker can help connect you with these lenders.
- Documentation: Keeping thorough records is crucial. This includes payslips, tax returns, bank statements, and proof of contracts. The more evidence you have of a stable income, the better your chances of approval.
- Seek Professional Advice: Every situation is unique, and working with a mortgage broker can help you navigate the complexities of applying for a mortgage in your employment situation. They’ll know which lenders are best suited to your needs and can help you present your case in the best light.
How Lenders View Non-Traditional Employment
Lenders are fundamentally interested in risk. The less predictable your income, the higher the perceived risk. Traditional employment is often seen as stable, with regular paychecks providing reassurance to lenders. Non-traditional employment, by contrast, is viewed as riskier due to income variability. However, this doesn’t mean you can’t get a mortgage – it simply means you need to be prepared to demonstrate your financial stability more clearly.
Affordability Calculations
Affordability is a key factor for lenders. Lenders assess whether you can afford the mortgage repayments, considering your income, outgoings, and any debts. For those in non-traditional employment, proving affordability can require extra documentation and evidence. Contractors, freelancers, and those on zero-hour contracts may need to provide more extensive income history to show consistency and reliability.
- Income Averaging: Lenders often average your income over two to three years to account for fluctuations. If you have had a particularly strong or weak year, this averaging can work for or against you.
- Business Bank Accounts: If you are self-employed or run your own business, lenders may ask to see business bank statements to verify the health of your business. It’s important to keep personal and business finances separate for clarity.
Deposit Considerations
A larger deposit can significantly strengthen your mortgage application, especially if your employment situation is less straightforward. A higher deposit reduces the loan-to-value (LTV) ratio, which can mitigate the perceived risk to the lender. For non-traditional employment types, aiming for a deposit of 20% or more can improve your chances of mortgage approval and may also result in more favourable interest rates.
Specialist Mortgage Brokers
Working with a specialist mortgage broker can be incredibly beneficial if you are in non-traditional employment. Brokers have extensive knowledge of the market and can identify which lenders are more likely to consider your application. They can also help you gather the necessary documentation and present your financial situation in the most favourable way.
- Access to Specialist Lenders: Many specialist lenders do not deal directly with the public and only work through brokers. These lenders are often more flexible and willing to consider applicants with non-standard income.
- Tailored Advice: A broker will take the time to understand your unique situation and provide tailored advice to improve your chances of getting a mortgage. This can be particularly useful if you have gaps in employment, fluctuating income, or other complexities.
Improving Your Application
To improve your chances of securing a mortgage, consider the following steps:
- Save a Bigger Deposit: A larger deposit will reduce the risk for the lender and may make it easier for you to get approved.
- Prepare Documentation: Make sure you have all necessary paperwork ready, including tax returns, bank statements, and proof of employment or contracts.
- Maintain a Good Credit History: Keep up with any existing credit agreements, avoid missed payments, and reduce your overall debt where possible.
- Stabilise Your Income: If possible, aim for income stability in the years leading up to your mortgage application. This may mean avoiding major changes in your work pattern or taking on longer-term contracts.
Final Thoughts
Being in non-traditional employment doesn’t mean you have to give up on homeownership. With the right preparation, documentation, and advice, you can find a mortgage that works for you. Understanding how lenders view your income and taking the necessary steps to strengthen your application will put you in the best position to secure the mortgage you need. The key is to be proactive, organised, and willing to seek out specialist help if needed.
If you’re unsure where to start or need advice, get in touch with Quick Mortgages. We’re experienced in helping clients with all kinds of employment backgrounds secure the right mortgage and get on the property ladder. No matter your employment situation, we can provide guidance and support to help make your dream of owning a home a reality.
——–
Disclaimer:
This article is for general guidance purposes only and does not constitute legal, financial, or professional advice. Mortgage products and their terms can vary, and it is important to seek advice from a qualified, regulated professional who can assess your individual circumstances. Please ensure you consider your unique needs before making any financial decisions.
While every effort is made to ensure that the information provided on this blog is accurate and up-to-date, we do not guarantee its completeness or accuracy. The mortgage market can change rapidly, and the information on this blog may become outdated. We recommend verifying any information before acting on it and seeking tailored advice.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
