Fixed-Term Contract Mortgages Explained

Yes. A fixed-term contract may not be as reassuring to lenders as a permanent one, but as long as you meet other criteria and apply to suitable lenders, a mortgage should be possible. Your contract type is just one of many factors lenders consider as part of your application.

The answers to the following questions will dictate which lenders will consider you, as they all have slightly different policies (which also change constantly).

Lenders will want to know:

• What your line of work is (role and sector)
• When the current contract started
• When it is set to end
• Whether it is due to renew or not
• Whether this contract has been renewed before,
• Your working history and if you have had other contracts before this one

Knowing the answer to the questions above means you (or your advisor) can compare mortgages across lenders in the market and match your situation to their current policy.

As with any mortgage, you have a couple of options – do all the work on research and find lenders you can go direct to (if possible), or use an advisor to do it all for you (and apply to the lenders you can’t access without them).

Before you get into it (and we’re obviously biased, as we’d love to help!), remember that getting this wrong can cost you a lot of cash in overpaid interest or deposit, loads of wasted time, and maybe even mean you get declined when you shouldn’t. This is a big job – there are over 100 lenders, so if you plan on doing it all yourself, be warned!

Also, remember that there are a range of brokers out there, and not everyone understands mortgages for fixed-contracts and complex income in general – using the wrong one can be costly!

• Review lender policy: Research the market (high street and specialist lenders) to establish each lender’s view of fixed-contracts, asking specifically what they do and don’t accept. Then, shortlist as many as possible whom you match with. You’ll also want to factor in standard things like your deposit, credit history, the property type, etc.
• Establish affordability: From all the lenders that can consider your income and everything else in your application, they will all offer different loan amounts based on their level of appetite to lend and their policy around calculating maximum loans. You’ll need to run calculations with each in order to establish which will give you what you need (see our calculator for this, but in general, it will be between 3 and 5x your annual income, perhaps a bit more for certain borrowers and higher earners).
• Review rates: Then, when you have a shortlist of lenders who will consider your situation AND lend you the amount you need, you’ll want to review their rates and pick the best one. Remember that many lenders (circa 30%) are not accessible to the public, and you’ll need a broker to get to them. Those lenders tend to be more flexible, so it might be likely that the best deal is a broker-only deal.

Then what?

• Download and optimise your credit records: It’s always worth reviewing these to ensure there are no surprise issues that might get in the way. You can do this by signing up for a free credit report trial. Your broker will help you identify any inaccuracies or out-of-date information on your reports, reducing the risk of rejection.
• Collect all the necessary paperwork and documentary evidence: It helps to be prepared for this kind of application, so get your documents together, including your bank statements, P60, current contract, previous contracts, evidence of work in the same field, and if you’re trading as self-employed, get your up-to-date accounts (including your  SA302 tax return forms).
• Submit the application to the right lender: If your research is right, this should be the lender with the best deal from all those who accept your situation, so you apply for the right one the first time. Getting it wrong means a lot of wasted time (sometimes weeks to get a decline, at which point you have to start again), but it can also harm your chances of getting approved with the best deal if you do multiple searches and it impacts your credit score.

A lender likes to know you’ll be able to meet your mortgage repayments. Having long-term employment assures them that’s likely to happen. A shorter working contract raises the question of how you’ll pay once the contract ends.

With this in mind, the longer you’ve been on fixed-term contracts and the fewer employment gaps you have, the better your deal will be.

What if your contract only runs for 12 months?

You can still potentially get a mortgage. This is a common fixed-term contract length, and many lenders are open to applicants for this type of contract. Applying for a mortgage before the six-month mark could help, as some mortgage providers will only lend if at least six months are remaining on your contract.

Every lender is different in a) what income they will accept and b) how generous they are, so to get an accurate figure for what you can afford, you will only have one way – to run calculations with all the lenders that accept your income and see!

Calculate your maximum borrowing

Use our contractor mortgage calculator to determine what kind of mortgage size might be available to you. It allows you to specify your employment type and then insert your wage or day rate to estimate what most lenders are likely to offer.

There is no “one” calculator in the market that does that accurately for you with every lender right now, so it’s usually a manual process, even for the professionals. Of course, we offer this service for those who want an idea or an exact figure, as well as what that will cost.

That said, as a general rule of thumb, you can use income multiples, so multiply your yearly income by 3, 4, or sometimes beyond 5 times a salary (£50,000 = a range of between £150,000 and £250,000 max borrowing across lenders). Other factors like your age and other debts can also reduce what you can afford, so this is not going to be an exact figure.

On assessing whether you qualify, lenders will be considering:

• Your contract Type: As mentioned above, this includes when it started, ends, has it been renewed, will it be renewed, gaps in employment, etc.
• Your type of work: Some professions carry more weight with a lender, such as teachers, doctors, and lawyers, who sometimes operate on fixed-term contracts.
• Your deposit: A bigger deposit and a lower loan-to-value (LTV) ratio reduce some of a lender’s risks.
• Your credit history: A good credit history can show you’re likely to be a reliable borrower. If you have bad credit, talk to your broker about how to remedy this and which lenders will still consider your application.
• Any debt you have: Lenders assess the level and type of debt they’ll accept from an applicant differently. A broker can tell you whether your debt will likely be an issue.
• Your age: Some lenders won’t offer mortgages to those over 75 or edging closer to retirement. Being below that threshold will count in your favour.
• The type of property you want to buy: The less risky the property, the more chance of approval. Risky properties include non-standard properties and perhaps those built of more unique materials such as timber or concrete.

Great question – if you want to review the market for fixed-contract-friendly lenders, we are just about the only place you can do this online yourself, using our smart mortgage comparison tool powered by the OMA® Engine.

Most comparison tables are just rates in a list, and give you no idea which ones you’d qualify for, but we want to bring transparency to the market to empower borrowers to make the best decisions for themselves and to support with world-class channel advisors – experts who are dedicated to helping people with complex income and fixed-contracts specifically on a daily basis. This ensures we do all we can to get borrowers the best possible outcomes.

So – compare away here!