As we have previously reported there are new mortgage rules coming into force in the near future that look set to provide further hurdles for those looking to get mortgages. This week mortgage brokers have highlighted the further challenges faced by those who work on zero hour contracts – making home ownership even more difficult to achieve in this situation.
What are zero hour contracts?
These contracts have received a lot of column inches in the news in recent months. They are contracts in which an employee must agree to be available for work at specific times and on certain days as specified by their employer. However while they must be available at those times there is no guarantee the employer will have any work available for them.
The contracts have been controversial among workers for some time now, especially among those who are signed to them. The uncertainty about the amount of work offered and weekly or monthly earnings have led them to be disliked among those who want some stability in life. While these contracts may suit some people, they are not the ideal solution for those looking to get a mortgage in the future.
Can a zero hour contract prevent a person from getting a mortgage?
It’s possible. A lot depends on how reliable the income has been from a particular contract when the person applies for a mortgage. It may also depend on whether they apply as an individual or whether they apply as part of a couple. The lender will take all points into account when considering a person’s suitability to get a mortgage.
Even if an individual has done well out of a zero hours contract the lender will know this could change at any time. They may choose to offer a smaller mortgage or alternatively decline to offer one at all.
From the point of view of the bank it is easy to see why these contracts can throw up a red flag. It could be argued that no job is 100% stable; a person can be accepted for a mortgage and be made redundant a month after moving into their new property. However a regular contract is more stable than a zero hour one, which can offer no work under the terms of the contract at any time. More than half a million people are currently employed on these contracts according to data from the Office for National Statistics.
The approach towards these contracts differs depending on which lender you go to. It is by no means impossible to get a mortgage if a borrower is on this type of contract, but a longer track record may be required. The chance of getting approval may also improve if the person on this contract is part of a couple, where the other person has a regular contract that brings in more money.
Clearly this could be yet another hurdle for potential mortgage applicants to tackle.