What is a zero-hour contract?

Just like any other employment contract, a zero-hour contract sets out an agreement for work under certain terms, and at a specified rate. However, it does not contain any commitment from the employer to provide a specific, or even a minimum, number of hours the employee is required to work.

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.

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.

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. However, a level of uncertainty still remains, leaving many lenders hesitant to offer mortgages to people on zero-hour contracts.

Can you get a mortgage with a zero-hour contract?

Yes, it is possible to do so, although it can be challenging at times.

As discussed above, when you’re on a zero-hour contract, your employment and income can seem uncertain or unreliable to mortgage lenders. In turn, this can make it more difficult to find the right mortgage product and a lender willing to support you.

However, in recent times, it has become easier for individuals on zero-hour contracts to get a mortgage, and it will only become increasingly easier with time. This is because there has been an increased number of individuals working on zero-hour contracts, therefore a number of lenders have started to offer products to cater to their needs.

Previously, only specialist lenders offered support, although you will now find that even a handful of mainstream high-street lenders have relaxed their rules and will offer you an employee on a zero-hour contract.

In most cases working with a mortgage broker is highly recommended. This is because they will know which lenders to approach based on your circumstances, ultimately maximising your chances of success and also streamlining the overall application process. If you want to discuss your situation, reach out and we will be happy to organise a free consultation.

How much can you borrow?

Your borrowing capacity will be based on a multitude of things, such as your credit score, deposit amount, and employment history – not just your income. However, to give you a rough guide, you can typically borrow anywhere from 3.5 to 5.5 times your yearly income.

For example, if you have a good credit score, sizeable deposit, strong proof of consistent employment and income, and a yearly income of £40,000, you may be able to borrow the maximum amount. Therefore, your maximum borrowing would be 5.5 times your annual income, so in this case it would be £220,000.

However, if you have a less-than-perfect credit score with gaps in your employment history, the lender may only allow you to borrow 4 times your income. Therefore, you could borrow £160,000 instead.

Are mortgage products for people on a zero-hours contract different?

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

How do you get a mortgage when on a zero-hour contract?

The key to successfully applying for a mortgage whilst being employed on a zero-hour contract is proof of income and affordability. Lenders will expect you to demonstrate a reasonable track record of consistent working hours and earned income. Most lenders will typically require a minimum of 12 months of consistent income from your zero-hour contract. Some specialist lenders may consider 6 months, particularly if you have a strong history in that industry.

To do so, it’s best to provide the following documents as supporting evidence:

• Payslips from the last 12 months (some lenders may ask for up to 24 months to assess consistency).
• Evidence of employment history such as previous and current contracts.
• Your P60, an end-of-year certificate showing how much you have earned during a tax year.
• Bank statements from the past 3–6 months, showing regular income credits.
• If applicable, a letter from your employer confirming your continued engagement and typical working hours.

How Lenders Calculate Your Income: Lenders will typically calculate your assessable income by taking an average of your earnings over the past 6–12 (or sometimes 24) months from your payslips and bank statements. The more consistent your income, the better. Lenders are also more flexible for zero-hour contract employees, specifically in high-demand sectors such as NHS bank nurses, care workers, or supply teachers.

If the income from a zero-hour contract makes up only a small part of your overall income, for example, if it is either a part-time job or a second income stream alongside a main, stable income, lenders may adopt a more flexible approach. With the main, stable income stream still in place, the existence of zero-hour employment becomes of secondary importance.

How much deposit will you need?

Fortunately, the level of deposit you will be required to meet won’t differ from any other applicant applying for a conventional residential mortgage. Providing the rest of your application and affordability can support it, the minimum deposit is generally 5% of the property’s value, resulting in a 95% LTV mortgage.

Although, 10% or more is usually preferable as it can allow you to unlock things like more favourable interest rates, longer introductory periods, lower fees, and lower monthly repayments. This is because the larger the deposit you are able to provide, the less risk a lender is taking on, as they have to lend you less money in comparison to the value of your property.

What interest rates to expect

You’ll be pleased to know that people on zero-hour contracts are offered mortgage rates no different to anyone else applying.

On top of this, the mortgage rate types available to you will also be the same as any other applicant. This means you can access the following product types:

• Fixed-rate products: Allowing you to budget much easier, interest rates on fixed products will not change for a set period of time. Therefore, your monthly payment will not change during the agreed term. These products usually last anywhere from 2 to 5 years, although they can occasionally last longer.
• Variable-rate products: Unlike a fixed rate, a variable product's interest rate will be guided by a benchmark rate, meaning the rate can change month to month. In turn, your monthly mortgage payment has the chance to both increase and decrease depending on the reference rate. Commonly, lenders will use the Bank of England base rate as their reference rate and then add a small percentage on top – this will be the rate they charge you.

If you want to discuss what interest rate you might pay, as well as what product is right for you, feel free to get in touch. One of our expert advisors will be happy to discuss your circumstances.