Can you get a mortgage on a fixed-term contract?
A common question for many individuals in the UK’s modern workforce is whether their employment status affects their ability to get a mortgage. With more people working on a fixed-term contract rather than a permanent one, this is a very relevant concern. The good news is that being on a fixed-term contract does not automatically rule you out of the mortgage market. In fact, many lenders are increasingly willing to consider applications from those with non-traditional employment. However, it’s a little more complex than with a permanent, open-ended contract.
How Lenders View Fixed-Term Contracts
Lenders’ primary concern is a borrower’s ability to consistently make their mortgage repayments. With a permanent employee, this is generally straightforward; a regular salary offers a predictable income stream. For someone on a fixed-term contract, the income stream has a predetermined end date, which lenders may view as a higher risk.
To mitigate this risk, lenders will scrutinise your application more closely. They want to be convinced that your income is stable and reliable, and that there is a strong likelihood of your employment continuing.
What Lenders Look For
When assessing a fixed-term contract mortgage application, lenders will focus on several key factors:
- Your Contract History: Lenders will want to see a history of continuous employment on fixed-term contracts. If you can demonstrate a pattern of being in the same line of work with minimal gaps between contracts, you will be seen as a lower risk. Some lenders may require a minimum of 12-24 months of continuous work history in this way.
- The Length of Your Current Contract: The more time you have remaining on your current contract, the better. Many lenders will require at least three to six months remaining, as this provides them with a degree of security regarding your immediate future income. If your contract is due to end soon, it can be beneficial to have a letter from your employer confirming their intention to renew it.
- Your Professional Background: The type of work you do can also influence a lender’s decision. Fixed-term contracts are common in some professions, such as academia, IT, and healthcare. Lenders may be more comfortable lending to applicants in these fields because the nature of the industry suggests ongoing work opportunities.
- Your Deposit Size: As with any mortgage application, a larger deposit can significantly improve your chances. A bigger deposit reduces the lender’s risk by lowering the loan-to-value (LTV) ratio. This can be particularly helpful if your employment history is considered less secure.
- Your Overall Financial Situation: Lenders will still perform their standard affordability checks, looking at your income, outgoings, and credit history. A strong credit score and a low level of existing debt will help to offset any perceived risk from your employment contract.
Getting a Mortgage with a Fixed-Term Contract
While it may take a bit more preparation, getting a mortgage on a fixed-term contract is entirely possible.
- Gather Your Documents: Be prepared to provide more comprehensive documentation than a permanent employee. This may include your current contract, previous contracts, payslips for an extended period (e.g., the last 12 months), and your P60.
- Speak to a Specialist Broker: This is arguably the most crucial step. A mortgage broker who specialises in complex cases will have in-depth knowledge of the market and know which lenders are most accommodating to fixed-term contract workers. They can help you present your application in the best possible light and save you a great deal of time and effort by directing you away from lenders who have stricter criteria.
- Consider the Right Time to Apply: If you have a few months left on your contract, it might be worth waiting until you have a new one lined up to strengthen your application.
In conclusion, a fixed-term contract is not a barrier to homeownership. By demonstrating a history of stable employment, having your documentation in order, and seeking the right professional guidance, you can significantly increase your chances of securing a mortgage. The key is to show lenders that your income is reliable, even if the employment isn’t ‘permanent’ in the traditional sense.
Your home may be repossessed if you do not keep up repayments on your mortgage.