Can fixed term contract employees get contractor mortgages?
At Freelancer Financials, we’re used to people using us as a last resort. Mention any other type of employment contract to a lender than ‘permanent’, and, well. It’s as if a Dementor has sucked all the joy from your advisor’s world. Then, as a consequence, yours.
Let’s make no bones: our main client profile is that of the professional contractor. They often work through agencies and pay themselves through a limited company structure.
But there is another type of contract that’s becoming evermore popular. It’s sort of a mix between permanent employment and professional contracting.
Ladies and gentlemen, please let me introduce: the fixed term contract.
What’s the difference between professional contracting and fixed term contracts?
Like professional contracting, there’s no generic way lenders deal with fixed term’s nuances. If a bank or building society caters for them, it’s rarely at branch level.
But that’s where any similarity between the two types of working ends.
Across industry forums, there is one huge common denominator underpinning professional advice:
if you’re on a fixed term contract, speak to a specialist mortgage broker about buying a home!
It’s good advice, too, even if you are only a second named applicant. You and your partner’s success getting a mortgage on a fixed term contract could hinge on you taking it.
Why do we need a specialist broker at all?
People who turn to us may have had their mortgage declined for any number of reasons; their:
- contract may be for cover or a short period of time;
- contract earnings don’t meet the minimum day rate for a genuine contractor mortgage;
- experience in the field they’re now working is insufficient;
- chosen mortgage provider has no underwriter criteria for contractors.
We also know that different mortgage lenders have unique interpretations of “contractors”.
So what’s the score if you’re on a fixed term contract looking for a mortgage? Are you self-employed, an employee or a bona fide contractor? Fair question.
Fixed term contracts: they do offer a modicum of protection
As with most contract-based mortgages, fixed term contract borrowing is a specialist niche. Some lenders are open to this type of employment. Others, not so much.
They may not recognise stringent legal elements that cover fixed term workers. Dismissal procedures for this type of working are more protective now than at any other time.
But, here’s the thing. The end of a fixed term contract is, from a legal perspective, a dismissal.
That means that employers must find a reason for not offering a run-on contract. Where they cannot, employers often cite redundancy. But they are duty bound to justify their decision.
That means that the employer should consider redeployment if possible. Times that they don’t need to back up there non-renewal could be if:
- a contract covered a specific reason (maternity, sickness, etc.);
- there are reasonable questions over your conduct or capacity;
- an SOSR (some other substantial reason) comes into force.
The problem banks find is this. Whilst there are rules that cover fixed term workers, what happens during any appeal?
The appeal period is indefinite by nature. How will you cover the mortgage during such an appeal? And, what happens if you lose?
Assessing and minimising risk
All mortgage lenders have a duty to assess risk, some more open than others. They’re not doing this out of spite. The FCA has guidelines to which mortgage providers must adhere. And since the credit crunch, most banks and building societies are strict on that score.
Getting a mortgage on a fixed term contract is already a struggle. Why would you risk another failed credit search?
Too many black marks on your credit could jeopardise any home ownership dreams you have. There’s a more secure way to get a mortgage on a fixed term contract.
The imperative need for specialist mortgage lending
Some lenders with whom we deal offer a fixed term contract mortgage through us. These savvy providers accommodate all workers, not only professional contractors.
In our industry, there’s one unequivocal name in contractor mortgage lending: The Halifax. Again, they’ve challenged the status quo and offer fixed term workers mortgages.
Moreover, you can even get mortgages now for people on zero hour contracts.
There’s a reason that specialist mortgage brokers exist. They understand mortgage lenders’ tolerances. They can take one look at your circumstances and identify a potential lender.
You won’t get that whole of market service on the High Street. There, an advisor only has access to their employer’s particular mortgage range.
If you’re in a fixed term contract, you may want to consider taking to your employer. If they’re amenable, they might offer you your next contract in a different way.
Mortgage providers do look at time served in a specific industry. After your current contract expires, you’ll have that.
Get a contract that you can fulfil as your own boss, then you’ll be in a stronger position. You can access self-employed mortgages or even genuine contractor mortgages.
There are limitations on both. Also, legal and taxable aspects you’ll need an accountant to make you aware of. But if buying a home is your top priority, then these may be sacrifices worth making.
Author: John Yerou
John Yerou is the owner and founder of Freelancer Financials; a trading style & trade mark of the award winning Mortgage Quest Ltd. One of the most recognised names in providing mortgages for contractors and freelancers across the UK.
In 2004 John began his career in Financial Services as an independent mortgage adviser and broker. John has been instrumental in negotiating bespoke underwriting for contractors with high street lenders.
His presence in the industry as a go-to expert is growing by the day and he is regularly cited and writes in publications both locally and nationally.