MORTGAGE GUIDE: HOW LENDERS VIEW FIXED TERM EMPLOYMENT CONTRACTS BY DANIEL MCLARDY
Edinburgh, being a university city and financial centre, is no stranger to those employed on fixed term contracts. The University of Edinburgh, for example, utilises fixed term contracts for a proportion of its PhD researchers, and fixed term contracts within the financial services industry are commonplace. However, despite the ubiquity of workers on fixed term contracts, there remains some confusion surrounding access to mortgage lending. As an Edinburgh-based mortgage broker we have a birds-eye view, and experience extremes in perception. Some clients approach us with the perception that it’s simply not an issue across the lender spectrum (a little optimistic), while others believe that their fixed term contract will exclude them from getting a mortgage altogether (somewhat pessimistic!). Here, I want to give you an overview of how lenders view applicants employed on a fixed term contract
WHAT IS A FIXED TERM EMPLOYMENT CONTRACT AND WHY DO LENDERS WANT TO KNOW ABOUT THEM?
It’s very much in the name. A fixed term employment contract is much like a permanent contract, but with an end date, at which point the employment ends or is renewed by the employer (usually well in advance of the end date). Other aspects to the employment can be largely the same, with the employee paid a salary via PAYE, as with a permanent position. This includes access to company pension schemes and other benefits, and it is not unusual for new-starters to be subject to a probationary period; again, much like a conventional permanent employment contract. Lenders want to know if you are on a fixed term employment contract. This is because they need to assess whether, by their own measure of risk, an applicant poses a lending risk. Thankfully, in today’s mortgage lending environment, the way in which lenders assess this risk is meaningfully varied from one to another. This is what we like, because a diverse lender criteria base means we are more likely to find you a mortgage for your circumstances. Let’s take a look at the positions lenders take on fixed term employment:
(1) THE NAE-SAYERS
Thankfully we don’t have to commit any time to “nae-sayers”. The vast majority of lenders invite applications from those on fixed term employment contracts, provided the applicant meets their unique criteria requirements
(2) THE HISTORIANS
The “history lenders” like to see evidence of a relatively deep track-record of working on fixed term contracts and/or experience working in the same line of work. In more rigorous cases, evidence of a contract renewal is required. These lenders tend to want to see this history stemming back between 12 and 36 months, as a rough guide. Where this history can be evidenced, these lenders can place less stringent requirements on the time remaining on the current contract
(3) THE FUTUROLOGISTS
These lenders take the view that the state of the current contract, and potential future contracts, deserves greater attention. We like these lenders too, because they can give those with limited fixed term employment experience the opportunity to acquire a mortgage, as there is less emphasis on employment history (we all have to start somewhere!). These lenders like to see a relatively long period before the current contract expires, typically between 12 and 36 months. In more rigorous cases, the lender may want to have an indication that the contract will likely be renewed, in which case a “comfort letter” to this effect may be required from the employer (if achievable). Again, we like these lenders because in Edinburgh we meet a lot of clients who are recent PhD graduates embarking on fixed term research employment contracts with their university. We have been able to find a lender for those with little or no prior fixed term employment experience, provided that their first contract possesses sufficient duration
(4) THE BLENDERS
We like the “blender lenders” because they can accommodate multiple permutations of fixed term employment circumstances. These lenders are both “historians” and “futurologists”, and we’d like to see more of them!
WHAT’S THE MESSAGE?
The message is that while fixed term employment contracts do require a deeper investigation in finding a lender to suit your particular circumstances, diversity of criteria across the lender spectrum significantly increases the chances of mortgage success. In my opinion, to seek-out the lender and mortgage of best fit, you should strongly consider the services of a good mortgage broker
CAN WE HELP YOU?
We can’t guarantee that we can help you, because each case has different wider circumstances, and lenders change their lending policies over time. However, if you are employed on a fixed term contract, we invite you to get in touch to see if we can help with your goals. We have the expertise to increase your chance of success
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