Fixed Term Contract Mortgage Guide for Borrowers

If you're considering a fixed term contract mortgage, it's essential to understand how it works. A fixed term contract mortgage allows you to borrow money from a lender for a set period, usually 2-5 years, with a fixed interest rate.

The fixed interest rate means your monthly payments will stay the same for the agreed term. This can provide stability and budget certainty, which is especially helpful for those with fluctuating income.

You can choose a fixed term contract mortgage for a shorter or longer period, depending on your needs. Some lenders offer more flexible options, such as a 2-year fixed rate followed by a 3-year variable rate.

Getting a fixed term contract mortgage requires some extra steps, but it's possible. You'll need to gather all necessary paperwork that demonstrates your income, including business accounts, tax returns, recent bank statements, and employment contracts.

Business accounts for the last two to three years, prepared by an accountant, are a must. This will help lenders understand your income and expenses.

You'll also need to gather tax returns (SA302) for the same period. This will give lenders a clear picture of your tax situation.

Recent bank statements for both personal and business accounts are also required. This will show lenders your income and spending habits.

Any current and past employment contracts should be included. This will help lenders understand your employment history.

Other sources of income, such as benefits, maintenance payments, or pensions, should also be documented.

Identification and proof of address, like a passport and utility bills, are also necessary.

Evidence of your monthly spending and available income is also required.

A strong credit score is also essential, so it's a good idea to check your credit score and get free credit reports from Experian, Equifax, and TransUnion.

Calculating your maximum borrowing is a great place to start when considering a fixed-term contract mortgage. You can use a contractor mortgage calculator to estimate what lenders might offer based on your employment type and wage or day rate.

Lenders will also consider your type of work, with some professions carrying more weight than others. This includes teachers, doctors, and lawyers, who often operate on fixed-term contracts. A bigger deposit and a lower loan-to-value (LTV) ratio can also reduce some of a lender's risks.

Your credit history is also crucial, with a good credit history showing you're likely to be a reliable borrower. If you have bad credit, talking to a broker about how to remedy this and which lenders will still consider your application can be helpful.

Here are some key factors that lenders will assess when considering your eligibility:

Having a guarantor can be a game-changer when applying for a mortgage on a fixed term contract. They can help you get approved, but many lenders want them to cover the whole loan, not just the shortfall.

Finding a guarantor who's willing and able to cover the whole loan can be a challenge, so it's essential to have a solid plan in place.

Some lenders are more open to giving mortgages to people working on fixed-term contracts, including high street banks like Halifax and Santander, and specialist lenders who focus on unique work situations.

Specialist lenders take a closer look at your situation, including your contract and income, and might be more willing to lend to you even if your job situation seems less stable to other lenders.

You can get a loan, even if you're on a fixed-term contract. Many lenders will consider your application, but it can be more challenging than for those with permanent contracts.

To boost your chances, start by building a strong financial profile, including a good credit score and a reduced debt-to-income ratio. Maintaining a stable employment history with minimal gaps between contracts is also crucial.

Lenders often multiply your yearly income by 4.5 or 5 to determine how much they'll lend you. However, for those on fixed-term contracts, they'll also look at your earnings history and how steady your income has been.

Some lenders are more flexible than others when it comes to fixed-term contracts, so it's essential to choose the right one. Consulting with mortgage brokers who have experience working with clients on fixed-term contracts can help you identify lenders that are more likely to approve your application.

It's also a good idea to provide comprehensive evidence of your income, including payslips, employment contracts, and bank statements. If you receive any bonuses or additional income, be sure to document and include it in your application.

You can borrow up to five times your income, depending on the lender and your individual circumstances. For example, if you earn over £70,000, you may be able to borrow five times your income if you have a year left to run on your contract.

You can get a mortgage on a maternity cover contract if you have a contract of 12 months or more and six months or more remaining. This is because lenders will consider your income from the contract.

If you're seconded to cover a position with a temporary pay increase, only your lower salary can be used to get a mortgage, since the pay increase is temporary and will revert to your normal salary.

When it comes to figuring out how much you can borrow on a fixed term contract mortgage, the answer isn't always straightforward. Lenders will base their decision on their internal criteria, which can vary from one lender to another.

Most lenders will multiply your yearly income by 4.5 or 5 times to determine how much they think you can afford to borrow. This is the same approach they use for permanently employed individuals.

To give you a better idea, here are some income multiples that lenders might use:

A strong employment record and evidence of consistent earnings will help you qualify for a higher income multiple. This is especially important if you've had a history of fixed term contracts with a long term still to run.

The length of your current contract can also impact how much you can borrow. If you have a contract with more than six months to run, you may be able to qualify for the same mortgage deals as permanently employed individuals. However, you'll still need to meet the lender's eligibility criteria, which can be stricter for agency workers, contractors, and those on zero-hours contracts.

Lenders consider several factors when evaluating borrowers on fixed-term contracts. Your type of work can be a deciding factor, with certain professions like teachers, doctors, and lawyers often viewed more favorably.

A bigger deposit and a lower loan-to-value (LTV) ratio can reduce some of a lender's risks. Lenders assess the level and type of debt they'll accept from an applicant differently, so it's essential to discuss any debt you have with a broker.

Your credit history is also crucial, as a good credit history can show you're likely to be a reliable borrower. If you have bad credit, talking to your broker about how to remedy this and which lenders will still consider your application is a good idea.

Some lenders won't offer mortgages to those over 75 or edging closer to retirement, so being below that threshold will count in your favor. The less risky the property, the more chance of approval, so consider this when choosing a property.

Here are some key factors lenders consider for fixed-term contracts:

Your earnings history and how steady your income has been are also important factors in determining how much you can borrow. A strong earnings history shows lenders you're smart with your money and likely to keep earning enough to pay the mortgage.

A mortgage broker will be familiar with each lender's criteria and advise on which might be best for you. They can help match you with lenders suited to your fixed-term contract status, simplifying the application process.

You can remortgage on a fixed term contract, but you'll need to go through another eligibility check, showing a strong employment history and a solid block of time left on your contract.

If you want a better mortgage deal, you might be able to remortgage with your current lender, but a mortgage broker can help you compare the best deals for your situation, taking your employment status into account.

It's possible to get a mortgage on a 12 month contract, especially if you have 6 or more months remaining or previous fixed term contracting experience.

If you're on a fixed term contract, lenders might be hesitant to approve your mortgage application. This is because they're worried about your ability to make payments if you go between jobs.

To increase your chances of getting approved, it's essential to demonstrate a reputation in your field. This can be done by providing a complete history of your employment contracts to the lender.

Having a strong reputation in your field and the contacts to find more work can be a major plus. For example, if you're a web designer, working mainly in that industry can show the lender you have a solid track record.

Proving your income is also crucial, especially when you're on a fixed contract. You may need to hand over your last year's worth of payslips along with your two most recent P60s as evidence of your income.

Showing stability in your immediate employment status can also put lenders' minds at ease. This can be done by ensuring your existing contract has some time to run, ideally six months or more.

Improving your credit score is another step you should consider. As a contract worker, you'll want to prove you can responsibly manage any money you've borrowed and have a good habit of paying your bills on time.

Here are some tips to improve your credit score:

Working with a mortgage broker can also give you access to a wider range of lenders, including specialist lenders who are more likely to accept applications from fixed term contractors.

If you've already had an extension on your fixed term contract, you're in a good position to remortgage. Some lenders want to see that you've already been on a long-term contract for over a year and that it has been extended before they'll consider you for a mortgage.

However, not all lenders have this requirement, so it's worth shopping around to find one that fits your situation. You can still remortgage even if you're new to fixed term contracts, as long as your contract was originally for 12 months or more and you have six months of it remaining.

This means you can take advantage of a better mortgage deal, even if you've had an extension on your contract.

If you're struggling to get a mortgage on a fixed term contract, don't worry, you're not alone. You can still potentially get a mortgage on a 12 month contract so long as you either have 6 or more months remaining, or have previous fixed term contracting experience.

Some lenders will consider you even if you have less than 6 months left on your contract, but it's essential to work with a mortgage broker specialising in fixed term contracts to increase your chances of approval.

To boost your application, focus on demonstrating your financial responsibility by providing steady income, a good credit history, and manageable debts. Prepare a strong application with clear income proof and a realistic budget.

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.

Here are some key things to keep in mind when applying for a mortgage on a fixed term contract:

Remember, every lender has different rules, so it's crucial to work with a specialist who can guide you through the application process smoothly.

You can still get 'high street' interest rates on a fixed term contract mortgage, so long as you know which ones you qualify with.

Your credit score plays a big role in determining which lenders you'll qualify with. The better your credit score is, the easier it will be to get a lower interest rate.

You can secure a fixed term contract mortgage even before your contract starts. Some lenders make mortgage offers to individuals who have signed fixed term contracts that don't begin for several months, which can be beneficial for trainee solicitors or those waiting for their fixed term contract to start.

This option is available to those with a minimum contract length, such as 12 months.

Before your agreement ends, it's essential to start thinking about your next steps. You can get a fixed term contract mortgage before your job starts, even if your contract doesn't begin for several months. Some lenders offer mortgage offers to people with signed contracts that don't start for up to three months.

This can be particularly useful if you're a trainee solicitor or someone who's waiting for a fixed term contract to start. You'll need to have a minimum length of contract, but if it's 12 months, you have options.

To increase your chances of getting a mortgage, you should show a track record of consistent work history. Even if your contracts are short, having minimal gaps between jobs helps. Lenders see this as reliable income potential.

You should also highlight your future job prospects. If you have job opportunities coming in, lenders might be more comfortable giving you a mortgage. To support your application, gather the following documents:

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Professional advice can cost money, but it's worth it to get expert guidance. £390 is the cost of professional advice for mortgages where your income is from a fixed term contract.

This fee is charged after a quick phone chat to discuss your situation and answer any questions you may have. If you don't qualify for a mortgage, the fee will be refunded.

You'll need to pay the fee after providing all your details and documents, which will be sent to you by the professional. This rarely happens, as the professional will work with you to ensure all the information is correct from the start.

Consulting with a trusted mortgage adviser can make a significant difference in navigating the mortgage application process. They can provide valuable guidance and help you identify lenders who are more likely to work with fixed-term contracts.

Mortgage advisers often have established relationships with a wide range of lenders, including those who specialise in working with borrowers on fixed-term contracts. This can increase your chances of approval.

They can assess your financial situation comprehensively and advise you on the most suitable mortgage options available to you, taking into account factors like your income, contract duration, employment history, creditworthiness, and affordability.

Lenders consider these factors when determining whether to approve your mortgage application.