Can you get a mortgage on a temporary work contract?

Fixed-term contract mortgage, do they exist? Getting a mortgage on a temporary work contract? Well yes. When applying for a mortgage, lenders want to ensure that you will be able to afford the repayments for the full term of the mortgage. Those in full-time employment rarely have an issue proving their income, but for those on temporary contract work, it can be more difficult to prove that you will be able to afford the repayments.

While most lenders will turn away applicants on temporary work contracts, there are some who will look past this aspect of your application and see the bigger picture. In most cases, they will consider your application based on a number of factors. In the following article, we will try to unpack some of the myths surrounding temporary contract worker mortgages.

The four different types of temporary contact

To make things more confusing, there are four different ways that temporary contracts can be categorised. It’s not just a case of having a permanent or a temporary contract, there are different ways that mortgage providers view this type of work. Some are more favourable than others.

1. Fixed term contracts

If you have a fixed-term contract, you will usually have a fixed start and end date for your employment. In other cases, your contract might come to an end when you complete a specific project. In some industries, this type of contract is the norm, so a lender would simply want to see past evidence of earnings.

2. Temp agency workers

Like fixed-term contracts, temp workers don’t expect their employment status to become permanent. However, there is no reason to believe that you won’t enjoy steady income as a temp worker. In many cases, the type of work you do as a temp worker will be crucial in the decision making process.

3. Short-term contracts

If you are on a short-term contract, such as maternity leave cover, you will be treated much in the same way as any other temporary contract worker. For example, if you moved from a full-time job into a short-term contract and you have no history of career gaps, there is no reason to believe your income won’t be steady. As above, the type of work often impacts the final decision.

4. Probationary period

Most companies offer a probationary period of around 3-6 months at the start of a new job before the offer is made permanent. In some cases, your probationary period could be as long as one year.

During this time, the terms of employment are quite different. The notice period is usually reduced from one month to one week, to allow both employer and employee to decide if the opportunity is right for them.

Some lenders will turn don’t applications from those in their probationary period, but it isn’t an issue for others. If you have a short probationary period, it may be easier to wait until the offer is made permanent.

So, can I get a mortgage on a temporary work contract?

The short answer is, yes! Many lenders are willing to work with those on temporary contracts. If you can provide evidence of past earnings, most lenders won’t see it as a problem. If you are unsure if your employment status will impact your ability to secure a mortgage, get in touch with one of our specialist mortgage brokers. They will be able to advise you on the best steps to take to increase your chances of getting a mortgage.

Why don’t some lenders like temporary contracts?

Lenders are always concerned with ensuring you will be able to afford the mortgage repayments for the full term. With temporary contracts, some lenders will be concerned that your income might dry up when your contract comes to an end. It isn’t only your contract type that lenders will focus on. They will also look at…

The type of work you do

Highly skilled workers will be seen as far more favourable than low skilled, manual workers. For example, many doctors and solicitors will work on the basis of short-term contracts. Locum doctors, for example, command higher earnings for short-term work. The highly specialised nature of their work suggests that they will always be able to find a new short-term contract.

In contrast, a warehouse worker or seasonal worker might struggle to demonstrate that their income is sustainable. The lower income levels might also leave lenders with questions about their application.

The length of your contract

Lenders will not only look at the overall length of your contract. They will also how long you have left on your contract. If you are nearing the end of a 3-month contract, this could be less favourable than being at the start of a 12-month contract.

If the contract has been renewed in the past

When your contract has already been renewed once, this is a good indicator to lenders. Even if you can offer confirmation from your current employer that they intend to renew your contract, this can help to bolster your application.

Earning and employment history

If you have a solid history of employment and can show a steady stream of income, your employment status will be less of an issue. With higher earnings, even an employment gap can be easily explained away.

Some contract workers like to work for 11 months and then take a one-month break before starting a new job. If their earnings for those 1 months are enough to support them for the extra month, this is unlikely to be an issue for lenders. Some lenders don’t like to see any employment gaps, so it’s always worth confirming with a mortgage broker before submitting an application.

How much can I borrow?

If you pass the affordability criteria, you will have access to the same mortgages as any other permanent contract worker. Most lenders will have a maximum loan to value (LTV) of 95%, meaning you will still need to secure a 5% deposit. Most lenders will allow you to borrow up to 5 times your income, just like any other borrower.

How can I increase my chances of being accepted?

If you are concerned that your employment type will impact your ability to secure a mortgage, get in touch with our friendly team today. We can help you navigate the many mortgage choices available to you. We can also advise on the best ways to increase your likelihood of being accepted for a mortgage.

Improving your credit score through responsible borrowing is a great way to increase your chances of getting approved for a mortgage. You should also keep employment gaps to a minimum and focus on saving a large deposit.

You can also read our complete guide to securing a mortgage while on a temporary contract here.

How will Brexit affect mortgages 2020

With the coronavirus outbreak dominating headlines, many have been distracted from the impending Brexit deadline. The United Kingdom is still on track to end the transition period on 31 December 2020 which will formally break all ties with the European Union. The impact on the housing market remains to be seen. However, there will be some key changes to UK law at the end of the transition period.

Changes to interest rates

The Bank of England base rate is linked to the health of the economy. If the UK enters an economic downturn as the result of the departure from the EU, this could trigger the Bank of England to drop the base rate. It’s worth noting that the base rate was recently dropped to the lowest rate ever in response to the coronavirus outbreak.

When the base rate falls, banks will typically drop their interest rates, but they are not obliged to. If interest rates increase, this could affect all mortgages except for fixed rates mortgages. Borrowers may wish to switch to a fixed-rate mortgage to ensure some stability, but this could prove counterproductive if interest rates are slashed to help stimulate the economy.

How does the base rate help the economy?

Interest rates are manipulated to help encourage economic activity. The theory is that there is less incentive to save when interest rates are so low. When borrowing is cheaper, there is more incentive to spend money and borrow from banks.

Will property law change after Brexit?

There are no plans to make any changes to the law following Brexit. The process of buying and selling a home will stay the same. The only thing that could change is the opportunities for British people to buy property in Europe.

Each country in Europe will be free to set their own rules for how to handle buyers from the UK. One likely thing is that it will become a lot more costly to purchase property in Europe and mortgage options may become more scarce.

Will property prices fall after Brexit?

There have been warnings that property prices could fall after Brexit. Some have warned that prices could fall as much as 30%. This could be a disaster for some homeowners as they could be left with negative equity. This happens when house prices fall and the mortgage value is then less than the home is worth. In this situation, the homeowner is unable to sell the home without owing the bank more money.

Will mortgages for the self employed be easier to obtain?

There is no word yet on changes to mortgage requirements for the self employed. At the moment, many self employed individuals find it difficult to obtain mortgages. But with the self-employed sector growing every year, there are calls on the government to do more to support this core group of workers.

At the moment, the self-employed typically require at least 3 years of accounts to prove their income. Mortgages for self employed with 1 years accounts are very hard to access and borrowers typically have to jump through a lot more hoops than most individuals. There are hopes that this could be made easier after Brexit.

The end of mortgage prisoners

One thing that is certain to change when the UK leaves the EU is the end of The Mortgage Credit Directive. This affected hundreds of thousands of people and left them unable to take control of their mortgage.

Mortgage prisoners are people who took out a mortgage before the financial crash and were subsequently denied the chance to remortgage as a result of this directive. Since these people didn’t meet the new criteria, they were unable to remortgage their properties and were left paying more than they needed to.

Who will win in the post-Brexit property market?

Those who are financially stable may be able to snap up cheap property following the end of the Brexit transition period. And those who already own their own home could save money by switching to a low fixed-rate mortgage in the wake of the Brexit deadline.

At the moment, it’s unclear if the 31 January 2020 will be observed, as the world is occupied with fighting the spread of the coronavirus.