In this brief guide, we are going to discuss how to get a fixed-term contract mortgage.
Fixed-term contract mortgages may appear as if they are hard to get but in the right circumstances and with the right mortgage lender they are no harder than getting a standard mortgage.
If you have just got a fixed-term contract and are considering getting a mortgage then you may want to speak to a mortgage broker to assess your mortgage options.
What is a fixed-term contract mortgage?
A fixed-term contract is a contract which has a start date and an end date. It may be the case that the employer may renew this contract but most mortgage lenders tend to take the more pessimistic view on this when working out your mortgage affordability.
Can you get a fixed-term contract mortgage?
Yes, getting a fixed-term contract mortgage is very possible depending on your circumstances.
As long as you can prove to the mortgage lender that your income is reliable and you have some experience in this industry then most mortgage lenders may be willing to consider your mortgage application.
If you have had some bad credit issues such as the below then there are mortgage lenders that may still consider you if you are on a fixed-term contract.
This will usually be based on the type of bad credit and how long the issue occurred.
Bad credit could include:
A debt management plan
A home repossession
Although your choice of mortgage lenders may be reduced due to bad credit issues, you may very well still be able to get a mortgage offer from a specialist mortgage lender.
How to get a fixed-term contract mortgage?
Fixed-term contracts are seen by mortgage lenders as being less reliable than a full-time employment role but getting a mortgage is still very possible.
To get a fixed-term contract you should focus on increasing your mortgage affordability and reducing the mortgage lenders perception of risk when considering you as a borrower.
Most mortgage lenders worry that when a borrower’s fixed-term contract comes to an end they may struggle to find a new source of income and could potentially default on their mortgage.
Some of the thing you could do to reduce your chances of getting your mortgage declined include:
Using a self-employed mortgage broker
Self-employed mortgage brokers work within a niche area of the mortgage market and would have knowledge of which mortgage lenders may be willing to accept you based on your circumstances.
This could prove to be invaluable knowledge and the difference between getting a mortgage offer and being declined for a mortgage.
A self-employed mortgage broker will also know how to present your mortgage application to the mortgage lender so you get a mortgage offer.
Build your credit
As with all mortgages and mos credit products, lenders prefer to lend to borrowers who have good credit scores and a credit history which shows good repayment behaviour.
If you ave no credit or bad credit then there are a few steps you could take to improve your credit score before applying fora fixed-term contract mortgage, They include:
- Keep your credit utilization below 30%
- Get a credit builder credit card or loan to show good repayment behaviour
- Keep your credit accounts open for as long as possible
- Get on the electoral roll
- Avoid making too many credit applications within a short space of time
- Avoid payday loans
- Avoid missing credit repayments or being late
If you are unsure of what your credit score is then you should check your credit score from the four credit bureaus in the UK: Experian, Crediva, Equifax and Transunion.
Some of these credit bureaus may charge you a fee to view your credit report so what you can alternatively do is request a statutory credit report which is a free credit report which each credit bureau must provide to you upon you requesting it.
Alternatively, you can also use credit score services such as Checkmyfile and clearscore to check your credit report.
Put down a good mortgage deposit
As with almost all mortgage lenders, the bigger the mortgage deposit the less risky you look to the mortgage lender as you reduce the loan to value on the mortgage and in some ways the mortgage lenders risk.
Putting down a mortgage deposit which is much bigger than the standard 5% requirement could increase your choice of mortgage lenders and mortgage rates.
Get an up to date contract
Having an up to date version of your contract which clearly states the stardate, the end date and the fee will greatly improve your mortgage chances as it can be included as part of your supporting documents.
If your employer intends to extend the contract then a letter of intent stating this could also be helpful.
Some mortgage lenders may refer to see at least 6 months left before they will offer a fixed-term contract mortgage.
Provide a history of contracts
By providing the mortgage lender with a history of contracts this will prove to the mortgage lender that you are able to source contracts easily and will be more likely to find anther job role after your current contract ends.
Mortgage lenders will perform a mortgage stress test to ensure that you can continue to afford the monthly mortgage repayments if your income fell or mortgage rates rose.
This may help them determine what mortgage rate to offer you.
Keep up to date accounts
You should ensure that your accounts are up to date and relatively error-free. This will ensure that you are able to show to the mortgage lender your income from the previous years.
Get a guarantor
A guarantor may be able to increase your mortgage affordability and make it more likely that you will be offered a fixed-term contract mortgage.
Your guarantor may have to provide collateral for up to 100% of the mortgage and if you fail to keep up on your monthly mortgage repayments then their asset may be repossessed to recover the outstanding mortgage balance.
How much mortgage deposit do you need for a fixed-term contract mortgage?
The mortgage deposit requirements in a fixed-term contract mortgage will differ from one mortgage lender to another but as stated above the bigger the mortgage deposit the more likely you are to get a mortgage.
Government schemes to boost your mortgage affordability
You may be able to increase your mortgage affordability by increasing the mortgage deposit available to you with a government scheme for first-time buyers and home movers.
These schemes include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Which mortgage lenders offer fixed-term contract mortgages?
The mortgage lenders that offer fixed-term contract mortgages change from time to time but at last check, this were the mortgage lenders who offered fixed-term contract mortgages:
- First Direct
- Leeds Building Society
- Yorkshire Building Society
You should check with your mortgage broker for an up to date list of mortgage lenders who offer fixed-term contract mortgages.
Can you get a remortgage on a fixed-term contract?
Yes, you may be able to get a remortgage on a fixed-term contract but this will depend on your current mortgage affordability.
If you have recently gotten a new type of employment since you got your initial mortgage then you may find it much harder to get a remortgage
If you have had any significant changes in your mortgage affordability then you may want to speak to a mortgage broker who can help you get a mortgage.
Use a self-employed mortgage broker
You may want to consider using an independent mortgage broker to get a mortgage.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.
This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your mortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month.
It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.
They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.
In this brief guide, we discussed how to get a fixed-term contract mortgage.
If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.