Lenders offer mortgages for employees on zero hour contracts which affect 1.7 million workers in the UK
Zero hour contracts are a growing trend, with the ONS Labour Force Survey reporting a massive 460% increase over 10 years from 2006 – 2016. That equates to 905,000 people, or 2.8% of all people in employment in the period October – December 2016.
The latest figures are 101,000 higher than that for October to December 2015 (804,000 or 2.5% of people in employment). On average, someone on a “zero-hours contract” usually works 25 hours a week, with women making up a bigger proportion of those reporting working on “zero-hours contracts” (52%) compared with their proportion in employment not on “zero-hours contracts” (47%).
But why have they taken off in recent years? Employers benefit from an ‘on call’ pool of staff for busy periods, and employees can fit work around their existing commitments without being contracted to the same hours week in, week out. The most popular sector for these contracts is accommodation and food, followed by health and social work, which account for almost half of all zero hour workers (22% and 20% respectively).
Such is the general interpretation of zero hour contracts you’d be forgiven for thinking they are the mainstay of students or casual workers, whereas 34% are actually on a full time basis, and 46% have been with their employer for two years or over.
Regardless of this, it may be the case that people on zero hour contracts are finding themselves ‘mortgage misfits’, a term coined to represent creditworthy borrowers who may not be able to access the mainstream mortgage market. They are not alone in this category, which also sees self employed and older borrowers facing difficulty.
This is because mortgage lenders must look at an applicant’s affordability, and decide whether their income will support the mortgage now and during its term. As zero hour contracts do not guarantee a set number of hours, or level of income, it can be harder to prove they meet these on-going affordability requirements, despite being willing and able to – and some mortgage providers use a computer based system to make decisions, which can make it more difficult to take individual circumstances into account.
However, options do exist and there are some lenders who use trained mortgage underwriters to make decisions, who can work to understand an applicant’s personal situation. This individual approach can help zero hour contracts workers who can show a regular, and sustained, source of income.
Lenders are starting to react to the shift and accommodate zero hour applicants, who would need to supply employment history (usually around 18 months’ worth) and a P60. This is the document issued to tax payers at the end of a tax year (you’ll receive it by 31 May), and will show how much you’ve earned during the period.
If you’ll soon be applying for a mortgage, whether you are employed on a zero hour contract or not, it is worth starting to compile the documents you’ll need. This includes payslips, bank statements, details of expenditure and balances of any outstanding loans and credit cards.
Guest blog by Ipswich Building Society
Rates start from 2.99% for a fixed 2 year deal with a loan to value of 75%. The variable rate for Ipswich Building Society at the time the above article was published was 5%.
For those worried about paying a mortgage whilst on a zero hour contract in the event of sickness or accident consumers can still access life cover or Accident, Sickness and Unemployment (ASU) insurance. A number of insurers offer policies for those on zero hour contracts including insurer Liverpool Victoria (LV=).
Tom Connor, of protection specialists drewberryinsurance.co.uk says: “With regards to the sickness side of the plan most insurers would only be interested in seeing evidence of your earnings upon making a claim.
“For example, they may want to see your tax return or pay slips to prove that you are covered within their limits (which ranges from 50% to 70% of pre-tax earnings).
However, there are some insurers that do not require any evidence of earnings so even if your income is low you can still gain sufficient cover provided that you work over 16 hours per week. Thus, for sickness insurance cover it is possible to gain protection.”