The contract killers

Some workers find it difficult to get mortgages, despite lenders' promises. Dido Sandler reports
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The Independent Online
AS EMPLOYERS shift 1.6 million to short-term contracts, contract workers are worrying about getting a mortgage, and few are bothering to apply.

Teachers and nurses are the professions most affected, with schools and hospital trusts preferring more flexible one-year contracts.

When workers do ask for a new loan or remortgage, some are having problems. Robert (not his real name), employed as a newspaper sub-editor on a series of three-month rolling contracts, was refused a mortgage by the Halifax Building Society.

"I was a Halifax borrower for six years, and there were never any problems with repayments,'' he said.

"When I was about to move house, and applied for a mortgage just £2,000 bigger than the last one, the local manager recommended my case. But the area office decided not to proceed. They claimed that I was a risky loan because when companies have shake-outs, people like me, on fixed short- term contracts, are the first to go. I had done the same work as a freelancer for two and a half years, and before that I had been employed by another publication as a full-time member of staff. But this appeared to count for nothing.''

In the end, the Halifax gave in only after much wrangling and the intervention of Robert's boss, who wrote a letter reassuring the building society of his permanence with the company.

With the stagnant housing market and the fiercely competitive marketplace, the mortgage lenders' publicity machines claim liberal attitudes to new working patterns that their branches sometimes do not share.

Mark Hemingway, spokesman at the Halifax, concedes that someone with Robert's level of experience in a particular profession, on PAYE, should be as eligible for a mortgage as someone in a traditional long-term contract. He advises customers encountering problems to call head office to find out policy, and then tackle local blockages.

The Council of Mortgage Lenders says that lenders' approaches depend on past business experience, and can vary. They recommend borrowers shop around to find the most sympathetic ear. Companies are generally more lenient now than two years ago, when people in some jobs, such as short- term workers in the building trade, found it impossible to get mortgage loans.

"Lenders are going to have to differentiate more and more with the questions they ask. What looks on paper an ostensibly more risky customer can be less so if the client gives more information about the particulars of his or her situation," said Sue Anderson of the Council of Mortgage Lenders.

Short-term contract employees divide into two groups; those on PAYE and those treated as self-employed, on schedule E. The former are, in general, in more stable jobs, and often work for many years on rolling contracts as short as three months.

A PAYE employee usually needs a letter from the employer to prove to the mortgage lender that his or her job is secure at the time of writing. If the employment looks long-term, the applicant should be considered similar to individuals on traditional long-term contracts.

Some lenders are more likely to lend if they see a relatively stable employment history. Others, such as the Halifax, provided the individual has several years' experience in the particular field, are more prepared to countenance loans to individuals with a history of employment with a series of employers. Direct Line, however, does not offer mortgages to short-term contract employees.

Schedule E taxpayers on short-term work have a poor deal. They usually have to show three years' audited accounts, or two years' acounts and an accountant's projection for the position at the end of the third year. If the application is mid-year, an SC60 or certificate of gross deduction can be presented.

Bank of Scotland's Mortgages Direct is offering a preferential interest rate of 7.34 per cent to self-employed people who can present the last P60 and a copy of the latest audited accounts, or an SC60 form, mid-year. This is available for loans of up to 85 per cent of value. One hundred per cent loans are possible, at 10.8 per cent interest, for the self-employed with audited accounts for two years or more.

Mortgage lenders view short-term employees' applications more benignly when the loan-to-value ratio is lower and there is a favourable borrowing track record with the company. Bank of Scotland considers more positively professions where career progression is possible, unlike some blue-collar jobs.