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Zero-Hour Contract Mortgages Explained

Written by Reviewed by Emma Lunn

31st Mar 2020 (Last updated on 19th Jun 2020) 6 minute read

When it comes to applying for a mortgage, it is possible to be approved if you are working a zero-hour contract. 

Nevertheless, as zero hour contract workers have no guaranteed hours and fluctuating income, it can be more difficult. Lenders will largely make their decision on your financial stability and some lenders won’t lend to zero-hour contract workers at all. 

However, there are steps you can take to strengthen your mortgage application whilst on a zero-hour contract. 

Compare My Move have created this article to assist those on zero-hour contracts looking to buy a home. We will review how lenders view zero-hour contracts, what you can do to improve your chances of approval and how to prepare.

This article will cover the following:
  1. What is a Zero-Hour Contract?
  2. What Do Lenders Think of Zero-Hour Contracts?
  3. How Will Lenders Assess You for a Mortgage?
  4. What Can I Do to Improve My Chances of Being Approved?
  5. How Can I Prepare for a Mortgage Application on a Zero-Hour Contract?
  6. Save on the Cost of Moving House with Compare My Move

What is a Zero-Hour Contract?

A zero-hour contract is a type of contract between an employer and worker where the employer is not obliged to provide any minimum working hours. The hours worked can range from a full working week to nothing at all, meaning minimal stability, no guarantee of work and a fluctuating income. 

These somewhat controversial zero-hour contracts mean the employee is on call to work when needed. They do not have to work when asked and an employer does not have to give them work. 

The benefits of these contracts are the flexibility they give to both the employer and employee. However, it does mean that for the worker, it will be that much harder to qualify for a mortgage.

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What Do Lenders Think of Zero-Hour Contracts?

Lenders are certainly cautious when it comes to zero-hour contracts and even more so if the contract is temporary. Some lenders will not approve zero-hour contract workers at all as candidates are considered too high-risk. 

However, given the rise in the number of people in this type of employment, there are lenders who will consider zero-hour workers. According to the Office of National Statistic figures, there are 896,000 people on zero-hour contracts in the UK. 

The coronavirus outbreak has made it more difficult to get a mortgage if you’re on a zero-hours contract. For example, in October 2019 HSBC relaxed its lending criteria for zero-hours workers. But since Covid-19, it has altered its criteria so that zero-hours income will need to be part of a joint application and will be limited to certain professions. Accepted professions are: NHS bank nurses and locums; non-NHS bank nurses; care home workers; supermarket workers and supermarket delivery drivers.

How Will Lenders Assess You for a Mortgage?

As workers on zero-hour contracts are not guaranteed a minimum number of hours each week, it is harder to prove a regular income to a mortgage lender. Some lenders will view a zero-hour contract as a “secondary” income and will only give you a mortgage based on 50% of your earnings. 

Lenders will take into account the length of time served at your current employer. They will also consider your profession when assessing your suitability for a loan. For example, high street banks Halifax and Natwest will look at evidence of earnings over the last two to three years to get an idea of your income. 

For Halifax to consider an application from a zero-hour worker, they must have been employed on a zero-hour contract for at least 12 months.

Lenders will take an in-depth look at your contract, looking for details to base their assessment. This can include if you’ve been working in the same sector for a number of years or with the same employer. 

They will also look at the role you have. This can be a significant factor when applying for a mortgage, especially if the role requires certain skills or qualifications. Occupations such as teaching, accounting, engineering and medical professions are just some of the fields which will be viewed more favourably by a mortgage lender.

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What Can I Do to Improve My Chances of Being Approved?

You may find it harder to get accepted for a mortgage on a zero-hour contract, but it’s not impossible. There are many different types of mortgages and a lender or mortgage broker will be able to discuss which one is right for you. 

Below are a few ways you can improve your chances of being accepted for a mortgage:

Hire a Professional

There are advantages to hiring a mortgage broker in this instance as they can give you an idea of where you are likely to obtain a mortgage.

Your broker will be able to prepare you for your application and what to expect during your mortgage interview. They will be able to find which lenders offer mortgages to those on zero-hour contracts and find the best deal for your circumstances. 

Increase Your Deposit

A larger deposit may improve your chances, as it reduces the amount the lender is lending. It will also demonstrate that you have been able to save money. 

As you will be borrowing less money, it means you can pay the mortgage off in less time and with less interest. Saving more for a mortgage deposit also increases the chances of being offered better mortgage deals. 

A mortgage adviser will be able to look into your situation in more detail and advise you on the best strategy when making your application. 

Improve Your Credit Score

A strong credit score will improve your chances of obtaining a mortgage regardless of your work contract. In the case of zero-hour contract workers, it can strengthen your application if you take the necessary steps to improve your credit score. 

Although there is not a set credit score needed for a mortgage, paying off debt, closing any unused credit cards and ensuring you are on the electoral register can all contribute to a higher score.

Consider a Fixed-Rate Mortgage

Getting a fixed-rate mortgage means that the interest rate on your mortgage  - and your monthly payments - will be fixed for a set amount of time. This is normally over two, three or five years.

With this type of mortgage, your payments won’t be affected by changes to the Bank of England base rate. 

The advantage of a fixed-rate mortgage, especially for a zero-hour contract worker, is security. You will know what your mortgage payments will be each month for a certain amount of time, which can help you budget.

How Can I Prepare for a Mortgage Application on a Zero-Hour Contract?

Being prepared for your initial mortgage interview will show the lender that you are serious about your application. Once you’ve arranged a mortgage interview with your chosen lender, make sure you have:

  • Evidence of your employment history - lenders will ideally want to see proof of employment over a period of 18 months or more.
  • A P60 (End of Year Certificate) which is issued to taxpayers at the end of the financial year. This will show how much you have earned during the tax year.
  • At least three months worth of payslips.
  • Bank Statements showing your income, outgoings and savings.
  • Evidence of child tax credits (if applicable to you).
  • Details of any credit cards and outstanding loans.

You may also wish to consider asking your employer for a reference. This could help reinforce your stable employment history and provide a character overview.

Compare and Save on Your Move

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Save on the Cost of Moving House with Compare My Move

When it comes to organising your property purchase, Compare My Move are here to help. From comparing conveyancers and hiring a house surveyor, to finding a removals firm, we can save you time and up to 70% on the costs. 

Adele MacGregor

Having written for PerformanceIN, WalesOnline, Grazia Magazine and The Olive Press, Adele now writes advice articles for home movers, first-time buyers and house sellers alike.

Emma Lunn

Reviewed by Emma Lunn

Freelance Personal Finance Journalist,

Emma Lunn is an award-winning journalist who specialises in personal finance, consumer issues and property.