Getting a mortgage on a temporary contract
In this brief guide, we are going to discuss getting a mortgage on a temporary contract.
People often wonder how hard it may be to get a mortgage on a temporary contract.
In reality, getting a mortgage in a temporary contract is very much possible with the right mortgage broker to assist you.
As long as you have not had a huge gap in employment and have had at least 12 months worth of working history in that line of work then getting a mortgage on a temporary contract should be very possible.
How can I get a mortgage while on a temporary contract?
To get a mortgage on a temporary contract you should take the below steps:
- Building your credit score and history
- Put down a bigger mortgage deposit
- Provide bank statements for the past 3 years
- Provide proof of 12 months experience in this field
- Provide your tax returns
- Provide your payslips from the last 12 months
- Provide your last two P60 forms
- Speak to a freelance mortgage broker
Doing the above things will help you increase your chances of getting a mortgage on a temporary contract.
A large mortgage deposit will be your biggest help to assist you in getting a mortgage on a temporary contract as it reduces the mortgage lenders loan to value ad hence their risk exposure on the mortgage.
Getting a temporary mortgage can be very tricky and you should look to speak to a freelance mortgage broker rather than going at it on your own and having your mortgage application rejected.
The four types of temporary contact
There are four main types of temporary contracts which mortgage lenders use to categorise different borrowers, they include:
Temporary agency workers
Temporary workers have temporary obs which may not turn into fulltime roles but temporary contract jobs will be viewed by the mortgage lender based on the type of job role they perform.
Fixed-term contracts are contracts which have a start date and an end date. If these are long fixed-term contracts then you will find that you are able to get a mortgage easier but if you have a short term fixed contract then you may find it much harder. In some industries fixed-term contracts are also the norm and a mortgage lender will take this into account.
Short term contracts
Short term contracts are usually contracts where cover is needed for a particular role e.g due to a sick or maternity leave. Those on short term contracts will find it much harder to get a mortgage on a temporary contract.
Most workplaces will have a probationary period and the terms that come with our probationary period could hinder or aid your ability to get a mortgage on a temporary contract.
Some workplaces will offer you a probationary period of 3 months and others a probationary period of up to 12 months.
On the other hand, the notice periods with probations could be as little as one week rather than one month and a mortgage lender will take this into consideration.
Not all mortgage lenders accept borrowers who are still on their probationary period so it might be worth waiting till you get a full-time position at your workplace.
What are the issues with getting a mortgage on a temporary contract?
The issue most borrowers face with getting a mortgage on a temporary contract is that the mortgage lender will not be happy with how reliable the borrower’s income may be in the future.
Gaps in employment
Once the temporary contract ends the borrower may have long gaps of unemployment as they look to find another temporary contract job or long term job.
Short term contracts
If you also have a short term temporary contract then the mortgage lender may view you as even much riskier and hence is more likely to reject your mortgage application.
However, there are some job roles where it is very common for short term contracts and the mortgage lender will take this into consideration when assessing your mortgage.
Short term temporary contract roles include:
Locum GPs etc
Type of employment
However, the mortgage lender will also pay close attention to the type of job role and the future career prospects of the borrower when deciding if to give a mortgage to a borrower on a temporary contract.
Mortgage lenders will look more positively on certain types of temporary contract job roles than they will with others.
For example, a retail worker on a temporary contract will be looked less favourable on than an IT professional or a doctor with a temporary contract.
The type of job role will usually determine if the mortgage lender will offer you a mortgage on a temporary contract or not. If the job role is one where there will be a lot of work hours then the mortgage lender will be more likely to offer a mortgage.
If your working hours are sporadic then you may find it harder to get a mortgage on a temporary contract.
Another reason why getting a temporary mortgage is difficult is that the mortgage lender will want to see how you will repay the mortgage for the duration of the mortgage term and if your income isn’t reliable due to too many gaps in unemployment then they will reject your mortgage application
Another issue with getting a mortgage on a temporary contract is that those whit temporary contracts tend to move from one job to another and this may mean that their income fluctuates over the year and hence may be seen as risky from the mortgage lender.
The length of your temporary contract
The length of your temporary contract will also play a big role in whether you will be able to get a mortgage on a temporary contract. A short term contract will make it much harder for you but if you have a much longer temporary contract then you may find it much easier to get a mortgage on a temporary contract.
Getting a mortgage on a temporary contract is therefore looked upon by mortgage lenders on a case by case basis.
What size of mortgage deposit will you need for a temporary contract mortgage?
You will usually need a mortgage deposit of 20% for a temporary contract mortgage but some mortgage lenders may request as much as 30%.
Keeping the loan to value rate on a temporary contract mortgage low will ensure you are able to get a temporary contract mortgage as you reduce the mortgage lenders risk on the mortgage.
You may be able to use a government scheme to improve your mortgage deposit.
Some of the government schemes which may be available to you 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.
FAQs: getting a mortgage on a temporary contract
Can you get a mortgage on a 6-month contract?
Yes, you may be able to get a mortgage on a 6-month contract but the mortgage lender will want proof that you can keep up the monthly mortgage repayments on your mortgage after your 6 months contract is over.
How long do you have to be employed to get a mortgage?
You will usually need to have been employed for at least 3 months for you to get a mortgage.
Can you get a mortgage on a 12-month contract?
Yes, you may be able to get a mortgage on a 12-month contract but the mortgage lender will want to see that you can continue to make the monthly mortgage repayments after the 12 months are over.
The mortgage lender will also want to see that you have a lot of experience in the field which you currently work.
Can I get a mortgage with a zero hours contract?
Getting a mortgage in a zero hour contract can be really hard due to the fact that the mortgage lender will have no certainty that you will have any future income.
Use a freelance mortgage broker
You may want to consider using an independent freelance mortgage broker to get a mortgage.
Freelance 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 than going directly to a mortgage lender.
A freelance mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.
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 remortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy or are satisfied with the mortgage offer for your remortgage 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 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 are going to discuss getting a mortgage on a temporary contract.
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.