More and more mortgage advisers are experiencing demand from people on zero-hour contracts as this underserved segment of the market continues to grow.
Ipswich Building Society and Secure Trust Bank recently became the latest lenders to offer mortgages to self-employed and zero-hour contract workers, who make up a five million-strong market, according to the Office for National Statistics.
But such lenders usually attach a number of conditions to gauge borrowers’ ability to repay, requiring proof they have worked in the role for a substantial period of time.
Daniel Bailey, principal at Middleton Finance, is seeing increasing numbers of people on zero-hour contracts seeking advice.
“Over the last 12 months I have experienced a lot more of it,” he said. “I had a client a couple of weeks ago on zero hours because it gave her flexibility. It did work well for her, but when it came to getting a mortgage it did have a downside as there are not as many lenders in the market for zero-hour contracts.
“There is a small trickle of lenders, but at the moment you have got to have a good track record.”
Jane King, IFA at London-based Ash-Ridge Asset Management, is also seeing more demand from zero-hour workers.
“In the area where I work, in London and the south-east, it is full of people on zero-hour contracts,” she explained.
“Most lenders will look at it if you have 12 months’ pay slips and take an average. Some still won’t, but most have accepted it and will take it into account.”
Bob Riach, at Scunthorpe-based Riach Financial Advisers, has experienced an upturn in applications from those on zero-hour contracts – but is more sceptical about their merits.
“I feel it is employers taking advantage,” he explained. “The media push it and say it is about flexibility – it might be true in some cases, but not in all.
“The last client I had was working for a takeaway firm. What the lender asked for was 12 months’ pay slips and 6 months’ bank statements showing the wages going in.
“It does make it harder, but it can be done.”
But Ray Boulger, senior technical manager at London-based John Charcol, said he did not have enough data to conclude whether applications from zero-hour borrowers were becoming more common.
“I think the short answer is there are a number of lenders who will accept this contract. The thing is they want some evidence of sustainability,” he added.
“Someone who started work on an ‘as and when’ contract style, if they only just move into it and don’t have a track record, they are going to struggle, but if people have been employed long enough to build up a track record, then it is perfectly feasible to get a mortgage from some of the smaller lenders."
As more lenders target this section of the market, some have expressed fears of a return to the risky lending that helped to precipitate the credit crunch.
Reuben Young, a spokesperson for affordable housing campaign group Priced Out, commented: “This is a tricky issue. On the one hand no type of working pattern should preclude people from getting a mortgage they can afford. But on the other, it's in no one's interest to be given a mortgage if their income is so precarious that their home could easily be repossessed.
“A sensible way to do this would probably be to treat zero-hour contracts similarly to self-employment - asking for proof of sufficient and sustainable income going back longer than the three months often required for employees.
“With zero hour contracts becoming more common, government needs to think hard about how they can ensure families and long term employees have job security.
“Much like assured shorthold tenancies, these contracts may work for some who want flexibility, but they seldom work for people with dependent children, or people wanting to put down secure roots.”
simon.allin@ft.com
