Zero hour contract mortgage

Last updated: June 2024 | 3 min read

A zero hour contract mortgage is designed for those with zero hour contracts instead of traditional fixed-hour employment. Securing one can be tough as lenders often require proof of a stable income. Read on to know more.

There are various mortgage products accessible for those desiring to get on the property ladder in the UK, but all require proof of a stable income stream. Zero hours contract mortgage is an option for workers who do not fall into the traditional category of a regular income.

What are zero hour contracts?

Zero hour contracts in the UK provide workers with the possibility to work flexible hours, akin to freelance arrangements.

Under these contracts, employees are not guaranteed a set number of working hours each week.

This employment form is prevalent in sectors where work demand is not consistent, allowing both employers and employees to arrange work schedules that can fluctuate significantly.

How do zero hour contract mortgages work?

The disadvantage of a zero hours contract income is its uncertainty. Mortgage products tailored for such workers accommodate the variable nature of their income. Specialist mortgage lenders review these applicants differently, often requiring a longer history of income to establish reliability.

These mortgage options are crafted to assess affordability more holistically, considering the borrower's entire financial picture, including income consistency over several years, savings, and credit history.

As zero hour contracts can be less predictable, mortgage providers may offer products with terms that can better handle the income variability inherent to these contracts.

Eligibility for a zero hour contract mortgage

Employment history and stability

A consistent employment history is a primary factor mortgage lenders consider. It's not merely the duration of employment that matters but the regularity and frequency of work under a zero-hour contract.

Demonstrable consistency in the hours worked, even without guaranteed weekly hours, can influence a lender's assessment positively.

How long should you have worked for the same employer?

The length of time you've worked for your current employer under a zero-hour contract can be a decisive factor. Mortgage applicants are often expected to show at least 6-12 months of employment with the same employer.

This duration varies among mortgage lenders, with some requiring longer periods to establish the reliability of income.

Proving your income beyond the payslip

For a zero hour contract worker, proving income can be more nuanced than for those with fixed contracts. Payslips may not suffice due to income variability. Lenders may request additional evidence to establish a pattern of stable earnings.

Bank statements can effectively illustrate your income over time. They provide a detailed and chronological record of earnings and expenditures. Mortgage lenders often review bank statements spanning several months to gauge income regularity and financial management skills.

Impact of job sector on mortgage approval

The sector you work in can bear significantly on your mortgage application's success. Lenders may view certain sectors as higher risk due to perceived volatility or the precarious nature of employment.

Conversely, working in a sector with a strong track record of zero-hour contract utilisation may work in your favour, demonstrating sector stability and the likelihood of ongoing employment.

Preparing mortgage application on a zero hour contract

Essential documents

Gather all recent documents detailing your financial history. Lenders will expect bank statements, payslips, and possibly your P60 form to verify income. Ensure every document is up-to-date, clear, and legible.

Checking and improving your credit file

Regularly review your credit report for accuracy. Dispute any errors promptly. Demonstrable actions to improve credit, like settling outstanding debts and registering to vote, can enhance your mortgage prospects.

A higher credit score often unlocks more favourable interest rates and a broader selection of mortgage deals. It reflects reliability to potential lenders, improving your chances of approval.

Consulting with a mortgage advisor

Mortgage advisors can navigate the complexities of mortgage applications. They tailor advice to your circumstances, maximising your chances of success with suitable lenders.

Deposit requirements for zero hour contract mortgages

How much deposit do you need?

Zero hour contract mortgages often demand a higher deposit from the borrower. Most mortgage lenders view zero hours contracts as higher risk, requiring a stronger financial buffer.

Generally, a deposit of 10% to 15% of the property value is expected. However, a few lenders may accept less, depending on the borrower's credit reports and overall financial health.

Larger deposits can influence interest rates positively and enhance the chance of mortgage approval.

Saving for a larger deposit

Zero hours contract workers benefit from accumulating a larger deposit. This effort can lead to more favourable mortgage deals and signal financial stability to potential lenders.

Strategies include regular savings accounts, ISAs, or even family gifts. A larger deposit reduces the loan to value ratio, offering access to a broader range of mortgage products and better interest rates. It also decreases monthly repayments, easing long-term financial commitments.

Finding the right mortgage lender for zero hour contracts

Mortgage providers with flexible criteria for zero hour workers

Mortgage providers differ significantly in how they assess zero hours contracts. Zero hour contract workers often benefit from lenders with flexible criteria. These providers assess affordability based on the average income over a certain period, rather than a fixed annual salary.

Mortgage providers may require a history of income from zero hours contracts, often looking at the last one to three years to gauge earning consistency. Regularity and frequency of work are important factors.

Some lenders consider additional income, such as a second job or regular overtime, which can bolster the application.

Specialist lenders vs mainstream banks

Specialist lenders often display more flexibility towards zero hour contract mortgages than high-street banks. These lenders normally have a deeper understanding of various employment types and are equipped to assess the nuances of fluctuating income.

A mainstream lender may offer more competitive rates but stricter criteria, which can be challenging for zero hour contract workers to meet. A high street lender might not be accustomed to the irregularities of zero hour contract income, possibly leading to a higher decline rate.

Specialist lenders, might provide a more tailored approach but potentially at higher interest rates.

Buy to let mortgages for zero hour contract income earners

Buy to let mortgages emerge as an option for zero hour contract income earners looking to invest in property. Lenders review rental income potential alongside personal income to determine mortgage affordability.

An experienced mortgage broker can assist zero hours contract workers in finding suitable buy to let mortgage deals. Lenders typically require a larger deposit for these mortgages and may have specific requirements regarding the applicant's experience in property management. The approach to buy to let mortgages for zero hour workers may involve a more comprehensive assessment of financial health and investment strategy.

UK's zero hour contract landscape

Statistics: how common are zero hour contracts?

Zero hour contracts are a significant part of the UK's employment market. Mortgage providers are adapting to this reality, with some now considering zero hour contract income. Zero hour workers may find this shift beneficial as it offers a path to property ownership that previously seemed out of reach.

Which sectors see the most zero hour contract use?

Retail, hospitality, and healthcare particularly rely on this flexible employment arrangement. The employment status of people in these sectors can influence lender confidence. Understanding sector-specific employment trends helps mortgage brokers tailor advice for these applicants.

Strategies to improve your chances for mortgage approval

1. Show consistency in your employment history

Maintaining a stable work history significantly boosts your profile with mortgage providers. Present a record of consistent work, preferably in the same sector. A sustained period of employment, evidenced by contracts and payslips, reassures lenders of your ability to manage financial commitments.

2. Build a strong credit history

A healthy credit score opens doors with most lenders. Regularly check your credit file for accuracy and take steps to rectify discrepancies.

Demonstrating financial responsibility through timely bill payments and judicious credit usage can improve your credit rating, enhancing your mortgage eligibility.

3. Accumulate a substantial deposit

The more you save for a deposit, the better the mortgage deal you can access. A substantial deposit reduces the lender's risk, which can compensate for the perceived instability of a zero hour contract. It also demonstrates financial discipline, a trait admired by lenders.

4. Engage with specialist mortgage advisors

A mortgage advisor with expertise in zero hours contract mortgages can be invaluable. They can steer you towards the right lender and mortgage product tailored to your unique employment circumstances. Their knowledge of the market can help secure favourable terms that a direct approach may not yield.

5. Opt for a joint mortgage application

Consider applying with a partner or family member if they have a stable income. This can bolster your application, presenting a more secure financial picture to the lender. Ensure all parties understand the commitment involved in a joint mortgage.

6. Present a comprehensive financial picture

Lenders appreciate a complete view of your finances. Include all income sources, such as investments or secondary employment. A thorough and transparent financial snapshot can influence a lender's decision positively.

7. Address potential gaps in employment

If there are gaps in your employment, prepare to explain them. Lenders understand that zero hour contract workers may experience fluctuations in work. Clear explanations, backed by documentation, can mitigate concerns.

8. Foster relationships with multiple lenders

Don't limit your enquiries to a single mortgage provider. Building connections with various lenders increases your knowledge of the different products available and improves your chances of finding a suitable mortgage deal.

9. Prepare for additional scrutiny

As a high-risk borrower, anticipate extra due diligence from lenders. Be ready to provide more extensive proof of income and financial stability. A proactive approach to gathering necessary documents can streamline the approval process.

10. Be realistic about the property value

Aim for a property within your means. Lenders are more likely to approve a mortgage if the loan-to-value ratio is within a sensible range. Your chances of approval improve with a property that reflects your financial reality.

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