Working Part Time and Getting a Mortgage

It can seem like getting a mortgage with a part-time income might be something that is elusive or even unobtainable.

Especially if you have struggled to get a mortgage with your income in the past.

The truth is whilst it can be challenging for part-timers to get a mortgage, it is not at all impossible and there are many ways that you can get onto the property ladder.

This guide looks at the areas lenders will ask to see and what you can do as a part-timer to get a mortgage. Let’s explore further!

Contract Type and Part Time Mortgages

First and foremost, your part-time work will be assessed by two factors.

Your income and your contract type.

Working part-time in the UK can be done in one of two ways, as an employee or as a self-employed person.

A lender typically classes part-time work as working for 24 hours or less each week.

If you’re employed on a full part-time contract, you will probably have the easiest route to a mortgage as you will be afforded all the job protections of a full-time employee which presents less risk to a lender.

Contractors and Part-time Work

If you’re employed on a contractor basis the lender will probably request a copy of your contract.

They will be looking to see how long your contract is in place for and what the working hour requirements are.

For example, you could be on a contractor style contract that lasts for 12 months and has zero-hours as the minimum working hours this would be seen as a potentially risky contract by a lender as you’re not guaranteed a certain level of work for a prolonged period of time.

Unfortunately, these types of contracts are fairly common across the job sector, especially if you’re providing maternity cover or temping.

Self-Employment and Part-Time Work

If you’re self-employed you might not have contracts and you may fall into part-time criteria because you work a few hours each day.

It is unlikely that a lender will even consider your part time status if you are self-employed, they are likely to simply treat you as self-employed.  

You might be surprised, but self-employment and working part-time hours isn’t too difficult to evidence to a lender providing you have filed your taxes correctly and have the necessary tax statement to show income (SA302s).

Mortgage Affordability and Part Time Mortgages

Now we have looked at hours worked and contract types, let’s look at the other big issue many part-time people have when it comes to getting a mortgage affordability calculations.

Currently, the Bank of England has removed the affordability requirements for obtaining a mortgage, but lenders haven’t yet adapted their application process to reflect this.

Most lenders will allow you to borrow up to 4.5 times your annual salary although this isn’t a golden rule, and some will limit your borrowing to far less. 

There are even lenders that allow you to borrow more than the 4.5 times.

Regardless, you will still need to show enough income to afford the property.

For example, a part-time worker on £15,000 a year might be able to borrow £67,500.

When you consider that property prices on average are far higher than this amount, you will need to make up the difference with a deposit or borrow with someone else.

The affordability calculation is normally what trips up most part-time mortgage applications and it is important to evidence as much income as possible to maximise your borrowing potential.

Residential Mortgages

Residential mortgages can be the most difficult type of mortgages to get as a part-time worker. 

This is because the deposit requirements can be as little as 5% – which means your income and affordability calculation will need to make up the other 95%.

For example, if you have a 5% deposit of £10,000 and you’re looking to buy a property at £200,000, you will need to have income that equates to a mortgage of £190,000.

In income terms, this is roughly £42,200 a year although this may differ from lender to lender. 

If your income doesn’t pass the affordability calculation the best idea is to aim to borrow less and save a greater deposit. 

The higher the deposit you put down the less income you will need to show for the mortgage, and you will have a better chance of passing calculations and getting the mortgage.

Buy to Let Mortgages

Buy to Let mortgages work in a different way to a residential mortgage. First and foremost, the deposit requirement is typically much higher, and lenders normally ask that you have 25% or more to put down on the property.

This higher deposit means you will have less money borrowed overall and your affordability calculation will be a little easier to pass than a typical residential mortgage.

Buy to Let lenders also factor in the amount of rental income you will receive from the property and there is an additional calculation lenders run to ensure that the rental income is above and beyond the monthly mortgage payment.

They tend to base affordability calculations on the monthly rental or anticipated monthly rental of the property instead of the applicant’s own income. 

What if I am Self Employed Working on a Part Time Basis?

If you’re self-employed you might not necessarily class yourself as a part-time worker, especially if you earn a full-time income working part-time hours. 

The general rule is that whatever hours you declare on your tax return will be used to assess whether you’re full-time or part-time.

When a lender receives your SA302 they will have a general overview of your self-employment. 

If that information indicates you’re working on a part-time basis, a lender may have a few additional questions for you.

The bottom line is that the key consideration of this process is your income. A lender won’t be too concerned if you’re working 24 hours a week and earning £50,000 a year.

All they are trying to do is assess whether you can afford to repay the mortgage.

Using Other Sources of Income Alongside Self Employment

If you’re self-employed you may also have other income streams aside from your main area of self-employment.

If they are income streams that you work for, a lender will expect you to have fully declared the information to HMRC and these to show on your tax statements.

For example, if you work on the side of your main self-employed role a lender will expect that income to be included in your tax return.

There are other forms of income that might not show on an income tax return though and if you have these types of income, you can declare it to lenders:

• Investment income
• Pension income
• Benefits such as working tax credit/child tax credit
• Spousal support or child maintenance payments

It is worth noting here that not all lenders assess this as additional income. Some lenders however will consider the above as additional income streams.

If you want to use these types of income for your mortgage application, you will need to do two things:

1. Discuss your additional income with a whole of market mortgage broker so they can find the lenders that will accept it.
2. Provide evidence of the additional income such as pension statements etc.

Using additional income can help fill any gaps you have in affordability and when you work out how much you earn, break down exactly what you receive and where it comes from to get an idea of your total income.

What Else Do I Need to Know for a Part Time Mortgage?

Income is the biggest area of concern for a part-time mortgage but there are two other areas that you should be aware of before considering a mortgage application.

These are your credit score and the amount of deposit you can put down.

Deposit

Deposit requirements for mortgages are quite strict, and it isn’t as simple as saying you have an amount of money to put down like you would with car finance.

You will need to show the lender the source of your deposit.

For example, if you have saved £50,000 the lender might want to see the money coming from a savings account and may even ask for statements to show you saving the money over time.

If the deposit is a gifted deposit from your parents, the lender will ask your parents to sign away that money to you.

In other words, it will be treated exclusively as a gift, and you have no obligation to repay your parents the money.

Aside from the actual source of your deposit, lenders will also want a deposit that is sufficient for the property value.

Most lenders will ask for a minimum of 10% to be put down for the mortgage.

Having said that, if you can put down more it will help your mortgage application in almost all cases so you should aim to put down as much as possible as a deposit.

Putting down a larger than normal deposit will mean two things:

1. Your total borrowing will be less and that means you have less interest to pay overall compared to a lower deposit amount.
2. Because there is less interest from borrowing a lower amount, your monthly payments will be reduced, and this could make a mortgage much more affordable for you.

Before considering a mortgage, look at your deposit amount and get an idea of how much you can realistically put down on your property. 

It doesn’t always help to think in terms of percentages and if you have more than the 10% required, it is worth considering putting down more.

Credit Scoring

Another often overlooked factor when getting a mortgage is your credit score.

You should do all you can to maintain a good credit score and improve it wherever possible.

When you get an Agreement in Principle (AIP) a lender will conduct a credit check to ensure you meet their minimum credit score threshold.

The good news is that most lenders use what’s known as a soft credit check for this and it won’t damage or impact your overall score negatively.

If a lender uses a hard search, you should be cautious about multiple hard searches being conducted on your credit file as this can negatively impact your score and cause problems arranging a mortgage.

Your broker will be able to tell you when a lender is doing a credit check and will also inform you whether it is a hard check or soft check.

When you proceed to a full mortgage application the likelihood is that a hard check will be conducted, and the lender will leave a record on your credit file to reflect that you have applied for a mortgage with them.

If the credit check declines at this point the record will still show on your credit score highlighting once again why it is so important to use a broker and avoid applying for mortgage products that will decline and impact your credit score.

Joint Applications When One Person Works Part Time

If you’re working part-time and you are struggling to pass affordability, it can make a huge difference to apply for your mortgage with someone else especially if the other person has full-time income.

Making a joint application with a part-time person will almost always help in some way as there will be additional income to show the lender and help bolster your affordability calculation.

You should be aware that applying with someone who is working part-time may delay your application a little as lenders may have a few more questions or request additional information from them.

Next Steps for my Part Time Mortgage

Getting a part-time mortgage is wholly possible and you shouldn’t be too worried about applying for a mortgage prior to talking to a broker.

Discussing your situation in full with a whole of market mortgage broker will give you a clear indication of what you can borrow and what steps to take if a mortgage application isn’t possible at the present moment.

Boon Brokers is a whole of market mortgage, insurance and equity release broker. Boon Brokers offers fee FREE advice, and we have extensive experience arranging part-time mortgages.

Contact Boon Brokers today for your part-time mortgage advice.