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Can You Get a Mortgage on a Zero Hour Contract?

Many working people in the UK today find themselves on what is called a ‘zero hour contract’. This does not necessarily mean they work fewer hours. Research suggests many still work a standard 40-hour week or even longer.

Working on a zero hours contract basis need not preclude you from applying for a mortgage. It may be more difficult, as fewer lenders will consider this type of application. However, with the help of a professional mortgage broker, it is possible to secure a mortgage on a zero hour contract with both mainstream lenders and specialist lenders and you can realise the dream of owning your own home even without a full-time contract. 

What are zero hour contracts?

The Office for National Statistics (ONS) states in the first three months of 2024, there were more than a million people (or over 3%) of the UK workforce on zero hours contracts; many of these people want to secure mortgages to buy property.

A zero hours contract is not a legal term. It is essentially a flexible and casual arrangement where the employer is not committed to promising (and paying for) a set number of hours of work per week for each individual, unlike a standard contract of employment. In turn, the individual is free to accept the work as and when it is offered, or to turn it down.

Zero hour contracts should not be confused with self-employed status. Even though this is not a legal term, employers must pay at least the national minimum wage for any work undertaken.  

Advantages

  • Working a zero hours contract is a flexible arrangement, and in many roles and jobs it can give individuals a lot of freedom in terms of when and how they accept paid work,
  • Many people undertake zero hours contracts to generate a second income stream outside normal employment hours,
  • It can also be a good way for the zero hours contract worker to gain vital experience and in some cases can lead to permanent employment,

Disadvantages

  • Work is unlikely to follow any sort of set schedule, which can present problems for those who require childcare or have other care commitments,
  • Zero hours contracts do not offer any degree of security or financial stability, as income amounts and the frequency of payment can fluctuate and can’t be guaranteed by the employer,
  • Work can be low income and also create pressure to accept additional hours for fear of not being offered work again in the future,

Is it more difficult to get a zero hour contract mortgage?

Mortgage lenders are constantly adapting to employment trends, and with an increasing number of people opting to work this way and employers preferring to go this route for a section of the workforce, it is possible to secure a mortgage on a zero hour contract.

Most lenders will need to see hard evidence of regular income and future potential income. With zero hours contract applications, this can be difficult to prove with consistency – you will be viewed as a high-risk borrower. You will need to demonstrate to your mortgage provider a stable income history, preferably over one to two years as a minimum, and also show the potential for your earnings in the future.

Factors considered to get a mortgage with a zero hour contract

Zero hour contract mortgages are not an insurmountable issue, although your application will be viewed as a higher risk with less job security, which may impact the interest rate. These are the aspects a mortgage lender will consider.

Credit history

Your credit history is always going to be important, whatever your employment status. Be aware adverse credit or a poor score on your application will work against you when seeking mortgage approval.

Employment history

Lenders will usually start assessing mortgage applicants by looking at your employment history, and the ability to present a consistent work record or employment history will be a real positive.

If you have worked in a particular sector for some years, or even with the same employer, even if this is a zero hour contract, this will reassure lenders your income can be stable and secure.

However, if you have worked in many different industries, if your employment record has significant gaps or even if you have just started a new job, this will raise red flags for lenders.

Your income

As with any mortgage applicant on a permanent contract or in a self-employed role, affordability plays a key part when assessing the application. Your mortgage lender needs to have confidence in your ability to meet your monthly mortgage payments.

Not every zero hour contract is remunerated at the minimum wage; far from it. Many generate a very respectable income.

It is important to be able to demonstrate and illustrate your past, existing and potential income, and your mortgage advisor will help you to do this to unlock the right offer from lenders at the right interest rate.

How your income is structured may also affect your application – many lenders will not consider bonuses, overtime or commission payments as part of your income stream.

Having savings can also make your application as zero hour contract worker more attractive; this demonstrates your financial stability, and track record of managing your finances, creating a deposit and also retaining access to emergency funds if needed.

Occupation

The nature of your occupation will also be an important consideration for your prospective zero hour contract mortgage provider. If your particular employment demands special skills, knowledge and qualifications, you will have spent time developing these and have successfully demonstrated your commitment and your abilities.

A more skilled or professional occupation makes you a more attractive proposition for most mortgage lenders, even if you work on a zero hours basis. It suggests you have committed yourself to your profession and will find it easier to secure employment in the same sector, going forwards and that your services are likely to remain in demand.

Will I need a larger deposit as I’m on a zero hour contract?

You will be viewed as a greater risk than an applicant with a more secure contract of employment, and this can mean mortgage lenders may require a higher deposit as a percentage of the total purchase price for a residential mortgage.

Equally, some lenders may have a ceiling on the loan-to-value (LTV) ratio they are prepared to offer an applicant on a zero hour contract. However, this will vary from lender to lender, and your mortgage broker will help you to identify the deal that is right for you and your circumstances.

It is also worth remembering a larger deposit could secure you a more competitive deal with more favourable interest rates.

The process of getting a mortgage on a zero hour contract

As well as the steps detailed below, mortgage lenders may require proof of how long you have worked with your current employer and whether this is a defined length or a rolling zero hours contract. Some are tolerant of gaps in employment, but you will certainly need to evidence your total income over a defined period (usually one to two years) in the form of P60’s, payslips and/or a tax return.

Get advice from a Mortgage Broker

There is a limited number of mortgage lenders who will consider applicants for zero hour contract mortgages. Many of these deals are not widely advertised, so it’s really important to get advice from an experienced mortgage broker.

At Mortgage360, our advisors will ensure your application is directed to the most suitable lender. We will help you with optimising your application in line with the lender’s requirements and provide you with professional support and guidance to navigate the process.

Improve your credit history

Before you begin the process, take a long hard look at your credit file and investigate what you can do to improve the picture it presents.

Working with your mortgage broker, you can identify any possible errors – they do occur from time to time – and evaluate where and how you can improve the score on your credit report.

There are some simple steps you can take as well as more in-depth actions to rectify any poor credit file issues; having bad credit does not always automatically preclude you from securing a zero hour contract mortgage.

Gather documentation

As with any mortgage application, including those on a fixed-term contract, there are documents you will need to produce to prove your identity and the reliability of your income. For those on a zero hours contract, this is even more important, as they can be seen as less stable and therefore less acceptable applicants.

Pull together all the documentation you will require. This will include a passport or driving licence photocard to confirm your identity,

A copy of your employment contract will be needed, together with P60s and payslips for the last two years, to evidence your income in recent times, either with the same employer or multiple employers.

Bank statements will be required too, plus evidence of any other sources of income to be taken into account.

Increase your deposit

How much deposit you have saved can play an important part in securing zero hours contract mortgages. Consider the advantages of saving as much as possible for your deposit before you apply to improve your chances of being accepted for a mortgage on a zero hours contract.

Being able to provide a bigger deposit and therefore requiring a lower LTV ratio can secure more competitive borrowing terms and the number of mortgage deals available from most lenders.

Larger deposits present reduced risks for lenders, so as a zero hours applicant, anything you can do to minimise this perceived risk will be advantageous.

It is however possible to secure a mortgage with a smaller deposit. At Mortgage360, our advisors will talk to you about the deposit you may require, and approach the right lender to meet your circumstances.

Understand you might only be offered higher interest rates

You will be viewed as a higher risk than other applicants, so as well as requiring larger deposits, many lenders will impose higher interest rates too.

Offering a bigger deposit may help to circumvent this, demonstrating your ability to manage your finances and helping to secure more competitive rates.

What lenders offer zero hour contract mortgages

There are plenty of mainstream lenders who offer mortgage products for zero hours contract workers. However, each of these lenders has their own requirements and criteria.

Some mortgage providers may only lend where the zero hours contract work is a secondary income over and above a permanent role, where they will consider the extra zero hours contract income as part of your income stream. Others have more flexible lending criteria.

Others will only accept applicants working in perceived safer sectors or industries, and others require you to have been working in your role for a minimum period of time, with the supporting documentation to prove it.

Interestingly, it can sometimes be easier to secure a buy to let mortgage, where the rental income from the property will cover the monthly mortgage repayments rather than your zero hour contract income.

At Mortgage360, we’ll help you to make the right choice, be it a mainstream lender or a specialist lender with products designed specifically for the zero hours contract market.

Other challenges

It’s not only those on zero hours contracts who can find it challenging to secure a mortgage. Many people who are changing their employment definition can also experience issues, such as switching self-employment status from sole trader to limited company, going self-employed from an employed position or even in the process of completing a probationary period.

At Mortgage360, we specialise in providing tailored advice specific to your situation. Talk to us today. As experienced mortgage brokers, we’ll provide clear advice and make the whole process easy.  

Summary

So it’s not impossible to secure a zero hours contract mortgage if you are on a zero hours contract, but it can be significantly more challenging in terms of providing evidence of income and finding the right mortgage providers to meet your needs.

Contact Mortgage360 if you’re a zero hour contractor and require expert mortgage advice from a specialist mortgage broker to get on the housing ladder on the right terms.

The information contained within this article was correct at the time of publication but is subject to change.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Gavin Watson

With a passion for customer service and a desire to help, Gavin lives and breathes mortgages and protection. Having passed his mortgage exams in 2006, Gavin has helped thousands of clients just like you! With such vast experience, there’s no doubt that he is a first-class mortgage adviser. Away from work, Gavin loves creating memories with his family and friends.