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.
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.
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.
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.
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.
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.
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.
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…
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.
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.
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.
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.
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.
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.