Damian Youell
Damian is the founder of NeedingAdvice.co.uk and the firm’s Senior Mortgage Broker. He specialises in helping clients across the UK with straightforward and complex mortgage cases, including self-employed applications, adverse credit, buy-to-let, remortgages and first-time buyer mortgages.
Alongside mortgage advice, Damian also supports business owners with protection planning, including Relevant Life Policies, Shareholder Protection and Keyperson Cover.
Read independent client feedback and verified reviews for Damian and the NeedingAdvice.co.uk team below.
In the ever-evolving landscape of the UK’s housing market, the concept of a “mortgage on a fixed-term contract” has become a significant point of discussion. This financial instrument, which allows homeowners to lock in their mortgage rates for a specified period, has seen a surge in popularity, with 83.1% of existing mortgage holders in the UK on fixed-rate contracts.
However, a closer look at the data reveals an intriguing trend: 32.7% of this group are on short agreements of 24 months or less. This shift towards shorter-term contracts reflects the dynamic nature of the UK’s housing market and the financial strategies employed by homeowners.
The latest statistics from the Financial Conduct Authority (FCA) reveal that the outstanding value of all residential mortgage loans decreased by 0.1% from the previous quarter to £1,657.6 billion and was 1.1% lower than a year earlier. The value of gross mortgage advances decreased by 13.4% from the previous quarter to £54.0 billion, and was 33.8% lower than a year earlier.
Moreover, most fixed-rate mortgages in the UK (57%) coming up for renewal in 2023 were fixed at interest rates below 2%. These deals that are due to mature through the course of 2024 will be from two-year fixed-rate deals made in 2022 and five-year fixed-rate deals made in 2019 when mortgage rates were generally higher than 2%.
This article aims to explore these trends more deeply, exploring the implications of fixed-term contracts for the UK’s mortgage landscape and what they mean for homeowners and potential buyers navigating this complex market.
Post Topics
What is meant by a fixed-term contract?
Can you get a mortgage on a fixed-term work contract?
Points to note before applying for a Fixed Term Contract Mortgage
Applying to multiple lenders once for your term contract mortgage
Banks or building societies that might accept fixed-term contract mortgages
How Underwriters Actually Treat Fixed-Term Contract Income
Lenders do not simply reject fixed-term contract applicants — they assess the contract itself. Underwriters typically want to see at least 12 months remaining on the current contract, or evidence of contract renewals over a consistent period (usually 2 years or more) showing a pattern of continuous work in the same role or sector. A single short contract with no renewal history is treated very differently to a third or fourth consecutive renewal with the same employer.
What documents underwriters ask for
Expect to provide the signed contract itself, your last 3 months’ payslips or invoices, bank statementsA record of a borrower's financial transactions often requir... More showing the income landing regularly, and — where you have previous contracts — copies of those too, to demonstrate continuity. Some lenders also request a reference letter from your current employer or agency confirming the likelihood of renewal.
The gap-between-contracts question
Short gaps between contracts (a few weeks) are usually treated as normal for contract workers and not held against you. Longer gaps, especially unexplained ones, can prompt further underwriting questions. Keeping a simple written timeline of your contract history ready for your broker to hand to the lender speeds this up considerably.
Why using a specialist broker matters here
Not every lender assesses fixed-term contract income the same way — some apply stricter renewal-history rules than others. A specialist mortgage adviser who already knows which lenders take a more flexible view of contract work can save you from applying to a lender whose criteria were never going to fit your circumstances.
Related Mortgage Guides
What is meant by a fixed-term contract?
A fixed-term contract is a type of contract in which your employment is due to end after a certain period or a specific part of the project. It is also a way to describe a particular type of employment different from the temporary contract discussed in our previous articles.
We have received many queries regarding the mortgage on a fixed-term contract. In this article, we will discuss this thoroughly and clear most of your doubts.
Can you get a mortgage on a fixed-term work contract?
Yes, you can get a mortgage with a fixed-term contract. A fixed-term mortgage could help you to start your first step on the property ladder. You can also remortgageDefinition A remortgage is when you switch your existing mor... More on your current contract, which is fixed for a specific time.
It is possible to remortgage if a certain period is available on your current contract with your employer. The process of getting a mortgage on a fixed-term employment contract requires a lot of things that you may need to consider. So, it’s always better to contact a mortgage broker who can guide you and help you to get a better mortgage deal.
Points to note before applying for a Fixed Term Contract Mortgage
Applying for a mortgage on a fixed-term contract is slightly different from the temporary contract mortgages that we have in our previous guide.
First, you need to research and look for a deal best suited to your profile. Every mortgage lender offers different lending criteria that you need to consider. It’s quite common that you don’t meet the affordability criteria of every mortgage lender. It is also true that not everyone has time to research term contract mortgages, and a financial adviser could help you by doing that research for you. At needingadvice.co.uk Ltd, we have specialised brokers who are knowledgeable about applicable mortgage rates from various lenders. We can help you in quickly deciding the lender with the most appropriate mortgage term.
Applying to multiple lenders once for your term contract mortgage
It is worth noting here that you should not apply to multiple lenders in one go for your term contract mortgage; it will limit your chances of securing the deal. Every lender goes through soft or hard credit searches on your application, decreasing your overall credit score. So, it’s better to do your research and start your application with one lender at a time. Always ensure to go for an affordability assessment before starting your application. Many mortgage brokers could help you in your affordability assessment for a term contract mortgage.
People often apply for multiple lenders after being rejected once, which results in many hard searches for credit checks on their profiles in a short period, affecting their credit history. If you hire a specialised broker before starting your fixed-term contract mortgage application, you will be saved from making mistakes that could result in adverse credit.
Current contract details
When securing a mortgage, the details of the current contract are of utmost importance. Lenders assess the length and renewals of the contract to determine eligibility and potential risks. Understanding the impact of a short-term contract and the significance of written confirmation or pending extensions is essential.<a name=”Banks or building societies that might accept fixed-term contract mortgages”</a>
Contract length plays a crucial role in mortgage applications. Lenders consider the remaining time on the current contract as it indicates the stability of the borrower’s income. Typically, longer contracts are more favourable, as they provide a sense of security for both the borrower and the lender.
Short-term contracts may impact mortgage eligibility. Lenders may view them as less stable and more risky compared to longer-term contracts. This can result in a lower loan amount or higher interest rates. However, borrowers can overcome this hurdle by providing additional documentation to demonstrate consistent income or securing a written contract renewal confirmation.
The significance of written confirmation or pending extensions cannot be overstated. Lenders generally require proof of contract renewal before approving a mortgage. Without written confirmation or a pending extension, borrowers may be seen as having uncertain future income. It is essential to communicate with employers or contractors and secure written documentation to alleviate the lender’s concerns.
In conclusion, the length and renewals of the current contract hold significant weight in the mortgage application process. Short-term contracts can impact eligibility, but borrowers can overcome this by providing additional documentation or securing written confirmation of contract renewal. Constant communication and careful documentation are key aspects when dealing with current contract details in the context of securing a mortgage.
Banks or building societies that might accept fixed-term contract mortgages
Lenders’ appetite to lend to borrowers with fixed-term employment contracts can vary, but working with a broker can help you identify which ones are more likely to approve your mortgage.
The brokers we work with have successfully arranged mortgages for fixed-term contract workers with the following lenders.
Various lenders could lend to borrowers with fixed-time contracts, but you may need a market broker to identify the ones with maximum probability. Some of the lenders are mentioned in the below list.
- Halifax
- Nationwide
- Barclays
- HSBC
- Santander
- Natwest
- Coventry
- First Direct
Next Steps
Getting a fixed-term contract mortgage is complicated, but with the help of specialist mortgage brokers.
When applying for a mortgage on a fixed-term contract, it is crucial to consider the deposit requirements. Lenders typically offer options for 5% and 10% deposits, similar to those for permanently employed individuals. The size of the deposit you need will depend on various factors, including the length of your contract and your financial situation.
An important factor to keep in mind during the mortgage application process is any gaps in your work history. Lenders may view these gaps as a red flag, so it is essential to provide explanations and evidence of how you managed your finances during those periods. Additionally, maintaining a good credit score and reducing any existing debts can also increase your chances of mortgage approval.
Overall, applying for a mortgage on a fixed-term contract may present some challenges, with proper preparation and documentation. , borrowers can improve their chances of approval. Working with a broker can also help identify lenders who are more likely to approve mortgages for those on fixed-term contracts. Borrowers can navigate the mortgage application process by providing additional documentation, securing written confirmation of contract renewals, and addressing any gaps in work history. Being proactive and prepared when applying for a mortgage on a fixed-term contract is essential.
FAQs
Can a temporary worker on a term contract secure a mortgage?
Yes, temporary workers and term contractors can obtain a mortgage, but the eligibility criteria and lending criteria might differ, requiring more comprehensive evidence of a sustainable income.
What are the documentation requirements for a fixed-term contract workerBorrowers who work on a contract basis. More applying for a mortgage?
Applicants need to provide a current employment contract, bank statements, credit score details, and, if applicable, tax returns to show a track record of financial stability.
How does the deposit size affect mortgage approval for someone on a temporary contract?
A larger deposit often improves the chances of mortgage approval, reducing the mortgage lender’s perceived risk, especially for temporary or short-term contracts.
Is it possible for agency workersWho Are Agency Workers? Agency workers are individuals emplo... More or term contractors to get a contractor mortgage?
Specialist lenders in the mortgage market offer contractor mortgages designed to accommodate agency workers’ or term contractors’ unique employment situations.
How does one’s credit history impact mortgage affordability for fixed-term contract employees?
A solid credit history, including timely credit card and loan payments, enhances mortgage affordability by demonstrating financial responsibility to lenders.
What role does a mortgage adviser play for those on fixed-term or term employment contracts?
A mortgage adviser can guide applicants through the entire mortgage application process, helping to identify contract mortgage-friendly lenders and specialist mortgage products.
Can gaps in employment or breaks in employment affect mortgage eligibility for temporary workers?
Yes, employment gaps can impact eligibility, but explaining the circumstances and showing a stable current employment contract can mitigate concerns.
What is the minimum requirement for contract length to secure a term contract mortgage?
Lenders vary in their requirements, but generally, a longer contract or a track record of renewals can improve eligibility and potentially offer more accessible mortgage options.
How do mortgage lenders assess mortgage payment and monthly mortgage payment capacity for term contractors?
Lenders assess the borrower’s regular income, annual salary, and sometimes the day rate for contractors to determine monthly repayment capacity and overall mortgage affordability.
What are the considerations for a fixed-term contract work mortgage in the mortgage market?
Considerations include the length of the contract, the stability of income, previous employment historyA record of a borrower's employment history, which may be us... More, and any gaps between contracts.
How does a permanent position versus a fixed-term contract impact the chances of mortgage approval?
Applicants in a permanent position might find it easier to secure a mortgage, but those on fixed-term contracts can still gain approval, especially with a good track record and a suitable lender.
What specialised services do mortgage advisers offer to those on fixed-term or temporary contracts?
Mortgage advisers provide dedicated support, helping applicants navigate the range of specialist mortgage products and understand the chance of mortgage approval, often using tools like a contractor mortgage calculator.