Zero-hour contracts hinder home ownership
New blow to first-time buyers: zero-hour contracts
Young people on zero-hour contracts and other contractors are facing new hurdles to home ownership
By Nicole Blackmore7:31AM GMT 16 Mar 2014CommentsComments
The rapid rise of “zero-hour contracts” is making it even harder for young people to step on to the property ladder, mortgage brokers have warned.
Zero hours just means an employee is “on-call” without a minimum amount of weekly work specified in the contract.
Mortgage experts said, like the self-employed, aspiring home owners’ options will be extremely limited while on these contracts. This is because lenders look for a history of income to prove the borrower can afford a loan; a prolonged period of low earnings on this type of contract can delay first-time buyers’ plans.
There were 583,000 employees on zero-hour contracts in the UK at the end of 2013, up from 143,000 in 2008, according to the Office for National Statistics (ONS).
Unite, the Labour union, said the figure may be much higher, as many under-thirties are employed this way without realising.
Many of these workers are in hospitality, retail, health care and education. Part of the rise has been attributed to the lack of job opportunities for university graduates, who often take on zero-hour contracts in the hope of finding more permanent roles.
Banks and building societies are cautious about lending because workers’ hours are not guaranteed and their income often fluctuates.
Santander will often consider zero-hour contracts to be “secondary income”, which means it will only consider 50pc of the total. The borrower must have a track record of at least 12 months in the role and evidence of their income.
HSBC requires a three-year track record, while Skipton Building Society and Virgin Money require two years. Halifax will consider income from the past 12 months.
David Hollingworth, a broker at London & Country, said self-employed and other contract workers can also struggle to meet lenders’ affordability checks.
ONS figures show 4.37 million people, almost 15pc of the UK workforce, are self-employed. This is up from 13pc in 2008. These workers could previously apply for mortgages without having to prove their income using “self-cert” loans. Many people exaggerated their earnings in the run up to the financial crisis and these products are no longer available.
“Gone are the days when self-employed borrowers could self-certify their income,” Mr Hollingworth said. “Now they will typically need to produce at least two years’ worth of accounts or self-assessments to evidence their income.”
Contract workers, common in the IT and construction industries, generally have to show they have an existing contract with at least six months remaining, plus a minimum track record in contract work of 12 months.
But Mr Hollingworth warned some lenders take an even tougher approach.
“Accord, which is part of Yorkshire Building Society, will want 12 months remaining on a contract and if not then two years’ history of contract income,” he said. “Coventry Building Society likes to see two years’ contracting history and six months remaining on the contract although it will also accept confirmation that the contract will be renewed.”
Others have made an effort to be more flexible. Clydesdale Bank usually likes to have two years’ contracting experience but it will consider cases where there is less if the borrower’s employment immediately before the contract was a permanent position in the same industry.
Halifax will take the gross value of a contract as evidence of income for IT workers. It will do the same for all other contractors who earn more than £500 a day or £75,000 annually. All must have a 12-month track record of employment and six months remaining on the contract, or two years’ continuous service in the same type of job.ero-
Ray Boulger of broker John Charcol said contract workers, including those on zero hours, should be aware they will have a more limited choice of lenders, meaning they may not have access to the best rates.
“Consistency is key here, as is the ability to prove a steady income. Be prepared to show more detailed evidence of income over a long period.”