In This Article
What is a zero hour contract mortgage?
A zero hour contract mortgage is for a worker that works for an employer with no set number of minimum hours.
For instance, for a full-time employed position, the employee would usually be contracted to a certain number of hours per week, such as 40 hours.
This makes their income much easier to predict as it would be the same amount as a minimum (or more if they’re doing hours more than the contracted hours) each week.
For example, if somebody works a 40-hour week at a rate of £12 per hour, this would put them on a weekly rate of £480 over a year, earning £24,960 (based on a 52-week year).
Most lenders will be willing to use this number as the annual salary, assuming they get holiday pay for any weeks they can’t work.
If you are on a zero hour contract and your hours are sporadic, lenders will underwrite the application differently to assess what they believe you earn.
If you are on a zero hour contract looking for a mortgage, you should talk to a professional mortgage adviser that can tell you how a lender will treat your income and what you would be able to borrow.
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Will all lenders offer a zero hour contract mortgage?
Most lenders would be willing to lend to someone on a zero hour contract. However, each lender has its own criteria for dealing with this income.
This will require you to have a minimum amount of time in the job, for example, one year, so that they can see a long track record.
Another lender needs you to have a certain amount of time working in positions that have zero hour contracts to demonstrate that you are used to receiving your pay in this way and can budget accordingly.
Some lenders may require less time in the job and are happy to work from a lesser amount of payslips.
Your mortgage adviser would go over your entire situation, looking at your hourly pay, amount of hours you have worked over a set period, your deposit, outgoings and credit file, to recommend a lender accordingly.
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Can you get a zero hour contract mortgage for buy to let use?
It is possible to get a buy to let mortgage person on a zero hour contract.
Again, although possible, other lenders may not be willing to lend in this scenario. For instance, buy to let lenders will require you to have a permanent income with a guaranteed salary for a certain amount of time, e.g. three months.
Also, some buy to let lenders work off personal affordability, which may make it more difficult for a person on a zero hour contract to obtain a buy-to- let mortgage.
The good news is that most mortgage lenders offering buy to let mortgages are more flexible on personal income than residential mortgage lenders.
Some buy to let mortgage lenders do not have a minimum income criteria at all, meaning that as long as they are comfortable with the situation in general and believe that the applicant’s financial position is strong, they can consider them for the mortgage.
This means that a zero hour contract should not cause a problem if the rest of the mortgage case meets the lender’s criteria.
The buy to let lender will need to know more details of the applicant, such as their landlord experience, deposit, credit history, incoming outgoings, and, importantly, how much rent the property will generate.
The amount of rent a property is expected to bring in is a fundamental part of calculating how much an applicant can borrow on a buy to let mortgage.
Your mortgage adviser would be able to discuss the complete details of your application to make a buy to let mortgage recommendation accordingly.
How do lenders work out your mortgage on a zero hour contract mortgage?
When lenders calculate how much you earn when you are on a zero hour contract, they are usually looking at a selection of payslips and possibly your P60.
Lenders ask to look at a P60 to check that the recent earning figures have remained consistent.
If, for instance, a lender wants to review somebody’s earnings over 12 months, they will likely ask for 12 months of payslips and a P60.
Using this as their annual salary, they would add up the income across 12 payslips. Most lenders that accept zero hour contracts will use 100% of this income.
However, some lenders will use a percentage of it, allowing them to be conservative if income was to drop.
For example, 75% of this variable income. Your mortgage adviser will have the tools to calculate how much income will be used and what your maximum borrowing would be.
To calculate this, they need to know full details of your income, outgoings, deposit amount, credit history, dependants and more.
Would I need a mortgage broker to get a zero hour contract mortgage?
Talking to a professional and experienced mortgage adviser would be strongly recommended if you plan to take a mortgage with a zero hour contract.
Talking with a regulated and experienced broker is recommended when you need a mortgage; however, a zero hour contract makes sure your mortgage is slightly more complex than usual.
There are many lenders in the mortgage market, and they all treat income differently.
A skilled mortgage broker would know which lender to approach once they fully understand the overall situation.
Most lenders will offer different amounts based on your income and outgoings, but it is hard for a person who does not deal with mortgages daily to know their best options.
Most mortgage advisers will be willing to give you a free consultation to establish the situation and determine whether they will be able to help you.
Once they know the route, they will make a mortgage recommendation for your situation.
When a mortgage adviser does this, you are under no obligation to proceed with their advice.
If you would like, I NEED ADVICE to match you with an experienced mortgage adviser; we can do this for you if you complete the contact form.
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Would you get a zero hour contract mortgage if you had bad credit?
Getting a zero hour contract mortgage is possible even if you have bad credit.
Not all lenders will offer this, as some do not accommodate applications for applicants with adverse credit on their credit file.
Also, not all lenders are good with zero-hour contract applicants. However, some lenders specialise in applicants with bad credit and consider people on zero hour contracts.
The lender would need to know details of your income, looking over a period from which they work to calculate what you earn.
In addition, they would also need a full understanding of the bad credit and why it happened.
Please ensure you tell your mortgage adviser the full details of your adverse credit history so they know which lenders may consider you.
You can go to Check My File and sign up for a free trial if you want more about your credit history.
Do lenders lend less for a zero hour contract mortgages?
Lenders may not necessarily lend less for a person on a zero hour contract as long as they can see that the income is consistent and there is a strong enough track record over some time, for instance, one year.
This is not to say that some lenders may reduce the income by a certain percentage if the hours are not guaranteed, treating this like another form of variable pay, such as monthly commission.
Suppose you did need 100% of your income to be considered. In that case, your mortgage adviser could likely find a lender offering this, assuming that you met the rest of the lender’s criteria when applying for the mortgage.
A mortgage broker can tell you how much you can borrow based on the track record of your income.
It is certainly possible to get a mortgage on a zero hour contract.
The length of service within your role will be significant as lenders need to see a track record of this income to calculate what you are expected to earn in the future.
The mortgage market is complex, and there are many factors to consider when checking whether you qualify for a specific lender. It is always recommended to take professional advice, so you know the correct lender for you in your individual situation.
If you would like I NEED ADVICE to match you with a qualified and regulated mortgage adviser, please complete the contact form.