Getting a mortgage on a fixed term employment contract
Paul Mizon explains the process of getting a mortgage on a fixed term employment contract.
How does a mortgage on a fixed term contract differ from a standard mortgage?
It doesn’t really differ too much. There are a couple of specialist lenders that do offer a contractor mortgage range, which are worth looking at. But most lenders have a fixed term contract policy. As long as you meet that policy, you will be able to access the same suite of products as any standard mortgage applicant.
What documentation do I need as proof of income when applying for a mortgage with a fixed term employment contract?
This can vary quite a lot. Usually lenders want to see the fixed term contract that you’re on, and some payslips and bank statements to check that it all matches up. If you’re self-employed via a limited company, they may want to see some business accounts.
They may also want to see previous contracts to check your contracting history, as well.
What costs are associated with getting professional advice for a fixed term contract mortgage?
If you come through The Mortgage Store, there’s a standard mortgage advice fee of £295. It’s the same cost that would apply to anyone else. In terms of solicitor costs, you wouldn’t pay anything extra on that either.
What income proof is required for employed and self-employed applicants when seeking a mortgage on a fixed term contract?
Just make sure you make your adviser aware of whether you are self-employed or not. It can make things easier from the start. Either way, your adviser can request the right documents and start placing your mortgage correctly.
What kind of mortgage advice is available to those seeking a mortgage on a fixed term contract?
It’s the same as any sort of normal mortgage. You might be a bit limited if your contract isn’t particularly long or you’ve not been doing it for a long time. But if you’ve got some history and you meet the criteria, we can give you the same advice as any standard customer. You won’t miss out on anything there.
How does the length of your current contract impact your eligibility for a fixed term contract mortgage?
With your current contract, the longer it is the easier it will be to place you with a lender. If it’s over 12 months – and some go up to 24 months – that opens things up. Even if it’s your very first contract, on day one you can look at getting a mortgage if you’ve got that 24 month role.
If the contract is quite short and you’ve only got a little bit of time left, some lenders might want evidence that it’s going to be renewed. They might also want to look at your history to see you’ve found previous roles without any large gaps.
Are there any specific things to do or additional steps to improve your chances of getting a mortgage while you’re on a fixed term contract?
If your contract’s ending imminently, make sure you’ve got something lined up – or where possible, get confirmation that it’s going to be renewed.
If, for example, you’ve only got a couple of weeks left on your current contract, lenders might not be happy to lend against that without confirmation of another position when it comes to an end.
Also, because they’re always asking about your previous contracts, make sure you’ve got them to hand.
What kind of deposit do you need for a fixed term contract mortgage?
Again, you could potentially be eligible for a 100% mortgage, which is offered by some lenders [podcast recorded in August 2023]. But 95% is the standard starting point for most people as a minimum deposit.
Is it possible to get a remortgage on a fixed term contract?
Yes. It works the same way. You just need to meet the criteria around fixed term contractors. But we absolutely can look at that.
How would someone go about talking to a lender regarding their mortgage application?
With fixed term contractors, some are paid a little bit differently. For example, many day rate contractors are on fixed term contracts. Or it might be a simple yearly salary on a 12 month contract.
But speak to a broker. If you just pop into your bank, you don’t know whether you will meet their criteria, so you can end up wasting a lot of time. So come in and speak to The Mortgage Store.
What factors determine how much you can borrow on a fixed term contract?
If you are paid a day rate, that’s a big factor. Lenders will do a calculation where they turn that day rate into a total income. They might calculate that over 46 weeks of the year – some might be a bit less, some a bit more.
Your history of fixed term contracting or longer term employment in similar roles are also important factors. The length of the contract you are on or starting is important too. So make sure you are armed with previous and current contracts with all the details, such as your day rate or your salary.
How long should you be in your current job or agency before applying for a mortgage?
That can depend on the length of your contract. If you’ve got over 12 months or up to 24 months, a couple of lenders will take you from day one, even with no history of contracting in that job.
Also, if you’ve been in the same type of job before, that will help. For example, you could have been working in a role for two years and decide to take that on a contracting basis. Again, from day one that may be accepted.
So approach a broker early on, as soon as you’re thinking about it. We’ll be able to advise – it’s never too early. We can help you get prepared. Lenders normally want to see at least a year’s history if you don’t have a long history of employment before contracting. Most want at least 12 months left on a fixed term contract.
What’s the role of a mortgage broker in helping people on fixed term contracts secure a mortgage?
Essentially, we know exactly what lenders are looking for. We know exactly what information we need from you upfront. We’ll gather that, we’ll look across all the lenders we have access to, and then come back to you with the best solution.
We’ll talk you through the steps and will be there throughout the process. Every decision with your different contracts will potentially affect your mortgage application as well, so we’ll explain the impact and your options at every step.
Your home may be repossessed if you do not keep up with your mortgage repayments.