What’s the issue with mortgages and temporary contracts?
Before any lender will agree to offer you a mortgage, they’ll want to see evidence that you’ll be able to make your monthly payments for the duration of your deal. That means you’ll need to provide proof that you have regular guaranteed income.
If you work on a temporary contract, however, your income may fluctuate, and may stop when the contract finishes, unless it is renewed at that point. This makes you higher risk from a lender’s perspective.
It’s worth noting that lenders tend to look more favourably on certain types of temporary contract than others. For example, many doctors and IT professionals work on what are known as ‘zero hours’ contracts, where they work whenever needed, with no guarantee of regular hours. In these cases, where your work is likely to be ongoing, although potentially sporadic, lenders are usually prepared to offer you a mortgage, particularly if you can demonstrate you’ve been in the same line of work for a while.
If, however, you are working for a retailer because they need extra staff over the busy festive season, you’re less likely to be offered a mortgage, because this sort of work will typically only last for a few weeks or months.
Remember that lenders treat all mortgage and remortgage applications on a case by case basis and they’ll take plenty of other factors into consideration when deciding whether or not to offer you a mortgage.
Bear in mind too that there can be benefits to working as a contractor. If, for example, you have formal contracts in place showing how much you’ll be paid for and for how long, you might be able to avoid supplying several years’ worth of accounts when you submit your mortgage application.
That’s because some lenders may base mortgage affordability on a multiple of your annualised contract rate, which means you may be able to get a mortgage as soon as your contract starts.
How can I improve my chances of getting a mortgage while on a temporary contract?
There are several things you can do to boost the odds of getting accepted for a mortgage while on a temporary employment contract. Most of them involve finding all the supporting paperwork you’ll need to prove your income and to show that your work won’t suddenly grind to a halt. You’ll need to:
- Show payslips for the last year
- Provide two P60 forms or tax returns
- Prove you’ve done the same kind of temporary work for 12 months or longer
- Show bank statements from the past three years
You should also get a copy of your credit history and see whether you can improve your credit score. Ways to do this include closing down any credit card accounts you no longer use and paying off outstanding debts.
Building a bigger deposit can really help too if you want to get a mortgage and you’re on a temporary contract, as it means the lender will have to take on less risk and so they may be more likely to accept your application.
What should I do next?
Getting your finances in order before you make your mortgage application is a good start. If you’re not sure which lenders tend to look favourably on temporary contracts, one of our advisers can take you through the various lenders’ criteria.
