Can I get a mortgage on a zero hour contract?
It’s not zero hope for zero hour workers
Whilst zero hour contracts are fairly commonplace in the hospitality, care and retail industries, they are also a growing trend in other sectors too.
A zero hours worker has the same rights to annual leave, the National Minimum Wage and National Living Wage as contracted workers but they do not have a guarantee of a minimum number of hours, and nor do they have to accept work from their employers when it is offered.
This flexibility may suit some, and in fact 65% of people asked in a study said that they were satisfied or extremely satisfied to be on a flexible, zero hour contract. However, this statistic does not necessarily reveal the whole story as conversely, one in three people on these contracts wish to have more hours to work than they currently receive.
The number of people employed on zero hour contracts is increasing year on year from 203,000 five years ago to over 900,000 in the last count during 2016. Whilst almost a third of the zero hours workforce is made up of 16-24 year olds, as might be expected, almost a fifth of people on a zero hours contract are between the ages of 27 and 34 - the age bracket during which most people purchase their first property in the UK.
A lack of guaranteed hours, and therefore income, can create issues for people if they are trying to borrow money - particularly when applying for a home loan. Many lenders will not consider those on zero hour contracts as they cannot provide paperwork to meet the strict affordability criteria - despite 34% of people employed on a zero hour contract working the equivalent of full time hours, and 41% of people employed on a zero hour contract having been with their employer for two years and over.
What is blocking my application and how can I get around this?
Lending criteria are put in place by mortgage providers in part to ensure that the applicant can afford to meet their repayments. Whilst it is more difficult for a zero hour contract worker to provide evidence of consistent income than a permanent, salaried employee, all is not lost. By following some simple steps and getting your paperwork in order, if you are employed on a zero hour contract, you can give yourself the best possible chance of being accepted:
- Save your payslips - most lenders will ask to see records of your income over a time period of at least one year. Many will want to see between 18 months to three years’ worth of employment history if you are on a zero hour contract. You need to build up evidence that you can afford to make the repayments.
- Keep your P60s year on year - P60s are an absolute necessity for those applying for a mortgage, especially those on zero hour contracts as they demonstrate consistency in your employment.
- For your own reassurance and for your lending application, do what you can to guarantee your future income - can you get a letter from your employer requesting they estimate the minimum and maximum number of hours they will offer you per month?
- Carefully research your employer before you agree to a zero hour contract - some may not be able to offer you the number of hours you need to take out a mortgage, others will suit your requirement for flexibility and stability perfectly.
- Seek out a mortgage lender who will offer you the opportunity to speak to an experienced consultant who has specialist knowledge about zero hour contracts.