What is a zero hour contract?

A zero hours contract is possibly the most flexible of all formal working arrangements, and recent estimates showed nearly two million people in the UK are working under this kind of agreement.

A zero hours contract will set out an agreement for work under certain terms, and at a specified rate, but does not contain any commitment from the employer to provide a specific, or even a minimum, number of hours. Employees are paid for the number of hours they actually work, but there is also no-obligation on the part of the employee to accept work offered (perhaps if they are unavailable due to activities elsewhere).

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Author: Carl Shave - CEO and co-founder
Last updated: 21 Jun 2024

What are the advantages and disadvantages of a zero hour contract?

Many contractors, freelancers and employees enjoy this kind of arrangement, and it can make sense in many sectors where specialist skills and specific services will only be needed on an ad-hoc basis. Interestingly, the Office of National Statistics showed that 34% of people employed on a zero hours contract worked the equivalent of full-time hours.

However, the downside of a zero hours contract is the uncertainty that it can create. According to the nature of the work, a contractor could be called on at very short notice (sometimes only hours before they’re needed) and might never be sure of when their services or skills will be required again, making planning their day-to-day schedule difficult, never mind the long-term future.

Fortunately, this isn’t always the case. Very often, the employer will offer a regular working environment for minimal hours with the option to vary the hours worked during busy or quiet periods. But a level of uncertainty remains, which means that lenders have been reticent about offering a mortgage to a zero hours contract worker in the past. The good news is that circumstances are changing, and you will find more lenders willing to accommodate people working on a zero hours contract.

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Useful information on zero hour contract mortgages

When you’re on a zero-hours contract, your employment and your income can seem uncertain or unreliable, especially to an outside observer like a mortgage lender. With lenders being notorious for not wanting to take risks with borrowers, it might seem that your quest to find a mortgage that meets your needs and helps you to remain established in a home of your own could have run into a brick wall.

But there’s good news – it doesn’t necessarily have to be that way. With more and more workers finding themselves employed on a zero-hours contract basis, a number of lenders have responded with products to cater to their needs and, as well as specialist lenders, you will now find that even a handful of high street mainstream lenders have relaxed their rules and will offer you a mortgage as a zero-hours contractor.

Applying for a mortgage as a contractor, or even as a conventionally employed person, can be a stressful experience at the best of times, especially if you are unsure whether you are looking at the right deal or putting together your application in the most favourable way to ensure success. Here at Just Mortgage Brokers, we specialise in helping self-employed contractors, including those on zero-hours contracts, to find the right mortgage to suit their circumstances and meet their needs. Keep reading below to learn more or contact us if you have any questions.

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Mortgages for people on a zero hours contract

You’ll be pleased to know that there is no difference in the type of mortgage, or the amounts available to borrow, for clients who are working on a zero hours contract. While the assessment of your income and application will vary from that for a conventional employee or regular contractor, you should have access to the same borrowing amounts, terms and interest rates as anyone else.

With the fast rise in the number of people working on zero hours contracts, many lending companies (including a few high street banks) have taken steps to move with the times, meet demand in the market and relax their approach to workers on a zero hours contract. Many reduced their minimum continuous employment with the same employer to one year instead of two, as well as reducing their time-to-offer to around ten days, and are willing to consider income shown on the last three payslips.

The key to successfully applying for a mortgage is proof of income and affordability. Lenders will expect you to demonstrate a reasonable track record, normally the minimum of 12 months, which shows a consistent level of working hours and earned income. If you can provide this, then you should be able to get the same offer as any other self-employed person or salaried employee.

If the income from a zero hours contract forms only a small part of your overall income, for example if it is either a part-time job for a second borrower, or maybe a second income stream for the main income earner – lenders may adopt a more flexible approach. With a main or alternative income stream still in place, the existence of zero hours employment becomes of secondary importance.

You’ll be pleased to know that people on zero hours contracts are offered mortgage rates no different to any other kind of business, and your application does not carry a premium or loading according to your employment status. You will not face an automatic penalty because your income is based on work under a zero hours contract. It will only be the assessment process that will vary from that for a conventional worker or regular contractor.

Much as it would be convenient to supply a list of the ‘best’ mortgage rates for people on zero hours contracts, it is impossible to do so here. The mortgage market is highly competitive and extremely dynamic, with products being adapted and changed, interest rates nudging upwards or downwards and new offers coming onto the market on an almost constant basis. What might be a favourable rate one day could be a poor competitor the next.

It is also imperative to not rely wholly on the headline interest rate to judge the mortgage deals you are looking at. Behind the interest rate there are many other terms that could change how you will benefit from the deal in the long run, or not.These could include the duration of the introductory deal, any fees or costs that could be applied and charges for early repayment. You might find that a mortgage with a slightly higher interest rate could work out better for you over the duration of the loan because of the other peripheral factors.

For a complete assessment of where you might stand with potential mortgage deals to suit your needs as a zero hours contract worker, please get in touch with our team. We’ll draw back the curtain and do the hard work for you.

If you are a worker on a zero hours contract then, unless you can show an extended period of regular work for the same employer (usually at least 12 months, but sometimes as much as two years), most high street lenders will be cautious about accepting your mortgage application. While many mainstream lenders have revised their criteria to be more accommodating towards zero contract workers, their assessments for potential borrowers are often based on quite narrow factors to do with income and creditworthiness.

In order to obtain the right mortgage for your circumstances, it’s likely that you’ll need to apply to one of the specialist lenders who cater to people in non-typical employment. These lenders take a far broader view of an applicant’s income, understanding the landscape of today’s workplace, new business structures, and how contractors work and get paid. They may also take other factors into account, such as assets or equity you hold, and look at your income in context.

The credit crunch around 2008–9 caused banks and high street lenders to become far more cautious about who they lent to, excluding most people who fell outside of their strict, conventional criteria from the mortgage market. In more recent years, numerous new lenders entered the market to meet the need for mortgages amongst the growing number of people on zero hours contracts, who now make up such a significant portion of the workforce that even mainstream lenders are now changing their policies to be more accommodating.

The mortgage that best meets your needs as a zero hours worker could be one from a high street provider or a more specialist lender, depending on the other circumstances around your case. To check your eligibility for a mortgage, and which lenders might have the right deal for you, whatever your employment history, feel free to get in touch today.

Advice on mortgages for zero-hours contract workers can be quite a specialist field, whether working with a mainstream lender or not. While a number of lenders have made it easier for people on zero-hour contracts to apply for a mortgage, most of them are instinctively risk-averse and you can never be sure that what you’re offered will be the best deal for you without talking over all your circumstances with a specialist mortgage advisor.

An experienced expert in the mortgages field will understand all the issues around zero-hours contracting and your income, and most importantly how you can frame your application for the best chance of success. With their deep knowledge of the market, a specialist advisor will know exactly which lender to approach, be that a specialist lender whose deals you won’t see advertised on the high street, or a mainstream lender, to find the right product to suit your needs and circumstances.

With over 12,000 mortgages from over 90 lenders to choose from, including deals we are often only able to access on an exclusive basis, we are confident we’ll be able to get you the right deal, however tricky it might seem to you right now. We’ll take the time to go over your particular circumstances, getting a thorough picture of your financial history and current income patterns, before giving you an honest appraisal of all the options that are open to you.

Researching all the possible lenders and products suitable for your circumstances by yourself could entail spending a great deal of time and energy in front of a screen, and you will only be covering the lenders available to you through public channels. These mainstream lenders often do not have the frameworks, processes or willingness to consider borrowers on zero-hours contracts. Only when you discuss your mortgage needs with an expert will you get the full picture and the impartial advice you need to make the right decision going forward.

Please feel free to get in touch with our team here at Just Mortgage Brokers for a free, no-obligation initial consultation. Let us do the hard work for you – we’ll be happy to see how we can help!

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Zero Hour Contract Mortgages FAQs

Getting a mortgage with income solely derived from a zero hours contract will be more challenging than if you had a regular permanent contract, but from experience we know that it will still be possible to work with many lenders’ criteria and see your application through to success.

The basic underlying problem for lenders is that the employer has no contractual obligation to offer work, and the employee no obligation to accept it, so there is no guarantee of a prolonged period of income and employment, and therefore no way to make an accurate plan for the future. However, provided you have a track record of twelve months’ continued employment with the same employer (although some will accept 6 months), there are certain lenders who will view the income as ‘permanent and regular’ and consider your application.

Until recently, being a zero hours contract worker put you at quite a disadvantage with the majority of lenders, most of whom saw people on these kinds of contracts as too high a risk, and to obtain a mortgage on reasonable terms you would have had to work with a specialist lender. However, with a significant section of the UK workforce moving to zero hours contracts and more flexible employment, more mainstream lenders have had to move with the times and change their criteria and expectations to meet their needs. We’re confident you will be able to get the mortgage you require at a competitive rate.

Fortunately, those on a zero hours contract applying for a mortgage will not get any nasty surprises when it comes to the level of deposit you will have to put down on the mortgage. You will be dealing with the same terms as anyone else and, as with any other type of mortgage, the minimum deposit is generally 5% of the property’s value (resulting in a 95% LTV mortgage), although 10% is sometimes preferable.

However, it’s worth bearing in mind that the larger the deposit you are able to provide, the better will be the terms of your mortgage deal. With a bigger amount to put down, you will be able to access deals with more favourable interest rates, perhaps a longer introductory period, lower fees and lower monthly repayments. It will also show a larger commitment on your part to the mortgage, therefore encouraging the lender to show greater flexibility and accept your application.

Knowing the advantages and disadvantages of each particular lender, both mainstream banks and specialist niche-market lending companies, is one of the main reasons you should talk your case over with a specialist mortgage advisor. With an in-depth knowledge of the entire UK market, one of our team will be able to match you up with the right lender and product to suit your particular needs and circumstances.

It is definitely possible to get a mortgage using a zero hours contract income and at the same time have a less than perfect credit profile. The severity, frequency and type of any past or current credit issue will need to be fully discussed in order to establish the options available to you.

This may be possible with the correct information gathering and application packaging. Some lenders do require a minimum level of earned income regardless of the rental income, although it is the rental yield which is used primarily to assess affordability.

For an existing landlord, the experience in the market will definitely help smooth the process.

As a first time landlord on a zero hours contract, you are likely to need at least 12 months history in the current position.

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