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  • Writer's pictureRichard Jennings

Can You Get a Mortgage on a Fixed Term Contract?

Trying to get your first mortgage when you are on a fixed term contract can seem very daunting and uncertain.


You might be wondering if it's even possible to secure a mortgage when your employment isn't permanent. The short answer is yes, you can.


However, there's a bit more to the story than a simple affirmative. The terms, conditions, and the lenders' criteria on such a move are aspects you'll need to consider.


For a clearer understanding of the intricacies and to figure out the best approach for your situation, you'll want to stick around.



Scales showing a house weighed down by a contract

 

Key Takeaways

 

- Fixed-term contracts can make it trickier to meet mortgage eligibility criteria.


- Lenders assess the risk of borrowers with fixed-term contracts based on their ability to pay back the loan beyond the contract period.


- A clean credit history and income stability are crucial factors for mortgage approval.


- Enhancing your mortgage approval chances can be done by improving your credit score, saving for a larger deposit, and considering the impact of interest rates.

 

Understanding Fixed-Term Contracts


A fixed term contract is a form of employment whereby you as the employee know when your period of employment with them will end.

One of the biggest concerns around these contracts is employment stability. If you're on a fixed-term contract, lenders may see you as a risk since your employment isn't guaranteed beyond the contract period. This might make it harder to secure a mortgage or a loan.


However, don't let that deter you. With careful planning and a solid understanding of your contract and employment history, it's possible to navigate these challenges.


Keep in mind that lenders will look at your creditworthiness, income, and other financial factors, not just your employment contract.


Mortgage Lenders' Perspective

 

From the mortgage lender's viewpoint, your fixed-term contract can present both challenges and opportunities.

 

The key concern here is the lender's risk assessment. They're looking at your ability to pay back the loan over time. Your fixed-term contract, while providing a clear income, doesn't guarantee it beyond a certain point. This uncertainty can cause some lenders to be wary. If your contract isn't renewed, how will you make your mortgage payments?


However, it's not all doom and gloom. Some lenders are more flexible and understand that fixed-term contracts are common in certain industries. They may look at your track record - if you've had multiple contracts in the same field, successfully renewed or extended, this can work in your favour.


Meeting the mortgage eligibility criteria can be trickier on a fixed-term contract. The criteria usually include a stable income, a good credit history, and a sizable deposit or equity within the home. If you can meet these, your chances of approval increase.


Key Considerations Before Applying

 

Understanding the key considerations before applying for a mortgage on a fixed-term contract can significantly boost your chances of success. It's not just about securing a contract that suits your financial situation, there are other elements to think about, like credit history importance and income stability.

 

Firstly, you can't underestimate the importance of a clean credit history. Lenders will scrutinise your credit report, looking for any red flags that might suggest you're a risky borrower. Late payments, maxed out credit cards, or a history of defaults can severely damage your chances of getting approved.


So, before you even consider applying, ensure your credit history is spotless.

Equally crucial is your income stability. Lenders need to see that you have a reliable source of income to make your mortgage payments. If your income fluctuates significantly or if you've recently changed jobs, this might raise concerns.


Try to demonstrate income stability over a reasonable period, if possible.

 

Enhancing Your Mortgage Approval Chances

 

After ensuring your credit history is in order and demonstrating income stability, you're ready to further boost your chances of mortgage approval. Understand the credit score impact on your mortgage application. A high credit score not only increases your chances of approval but also gets you better interest rates. So, work towards improving your credit score, pay your bills on time, reduce your debt and avoid applying for new credit.

 

Another crucial factor is the deposit or equity significance. The larger your deposit or equity within the home, the lower your loan-to-value ratio, which lenders love. It shows you're capable of saving and lessens the lender's risk.


You can obtain a mortgage with as little as a 5% deposit, but aim to save as much as you can. The higher deposit or equity you have then the lower your rate will be, the lower your monthly payment will be, the less interest you will pay and ultimately the lower a risk you will pose to the lender.


 

How Can a Change in My Fixed Term Contract Job Affect My Existing Mortgage?

 

If your fixed term contract job ends prematurely, it may affect your mortgage. Contract termination could make remortgaging at the end of your current deal difficult as lenders often seek steady, reliable income when assessing your ability to repay.

 

What Are the Potential Disadvantages of Getting a Mortgage on a Fixed Term Contract?

 

Potential disadvantages include the contract termination impact on your ability to maintain payments. Lender perceptions may also be negative, considering you as a risk due to income instability from your fixed term contract.

 

Is There a Possibility for Me to Renegotiate My Mortgage Terms if My Fixed Term Contract Is Not Renewed?

 

Yes, you can renegotiate your mortgage terms. Contract termination effects can influence your refinancing options. It's important to discuss these changes with your lender to understand potential impacts on your mortgage agreement.

 

Are There Specific Types of Mortgages More Suited for Those on Fixed Term Contracts?

 

Yes, there are. Contractor friendly lenders specialise in providing mortgages to those on fixed term contracts. However, you'll face income verification challenges, so be prepared to submit additional documentation to prove your income.

 

How Does Having a Partner or Spouse with a Permanent Job Impact My Mortgage Application as a Fixed Term Contract Worker?

 

Having a spouse with a permanent job can positively impact your mortgage application. Their stable income can offset your contract work. However, their credit score and personal circumstances can still affect your mortgage approval.

 

Conclusion

 

Securing a mortgage on a fixed-term contract isn't impossible, but it does require some strategy. Understand your contract's terms, consider lenders' perspectives, and ensure you're a strong applicant.

 

Enhance your chances by maintaining a stellar credit score, having a healthy deposit, and demonstrating job stability.

 

Remember, every lender's criteria is different, so don't be disheartened if your first application doesn't succeed. Persistence and preparation could see you owning your dream home in no time.

 

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