Can You Get a Mortgage on a Fixed-Term Contract?

Fixed-term contracts have become increasingly common in Australia, with many professionals in industries like IT, healthcare, and education embracing this non-traditional employment model. While fixed-term contracts offer flexibility and opportunities, they are often perceived as a barrier when applying for a mortgage. This article explores whether Australians on fixed-term contracts can secure a mortgage and how they can navigate the process.

Understanding Fixed-Term Contracts in Australia

A fixed-term contract is an employment arrangement where a worker is hired for a specific period, often with a predetermined end date. Unlike permanent employees, fixed-term workers do not have ongoing job security, which can make lenders view their income as less stable. However, fixed-term contracts are common in many industries, particularly in fields where project-based work or seasonal demand is prevalent.

In Australia, lenders are required to assess an applicant's ability to repay a loan. For individuals on fixed-term contracts, this assessment can be more rigorous, focusing on their income consistency, savings, and overall financial stability.

Can You Get a Mortgage on a Fixed-Term Contract?

The short answer is yes—Australians on fixed-term contracts can get a mortgage. However, lenders will closely scrutinise specific aspects of your financial situation before approving your application. Key factors include:

• Length of the current contract: Lenders prefer contracts that extend at least six months into the future.
• Employment history: A strong track record of back-to-back contracts in the same industry can demonstrate income stability.
• Industry stability: Certain industries, like healthcare and IT, are seen as more stable and may face less scrutiny.
• Financial position: Having a strong deposit, a good credit score, and low debt levels can increase your chances.

Each lender has unique criteria, so researching or consulting with a top mortgage broker like EE Mortgages can be invaluable.

Challenges of Securing a Mortgage with a Fixed-Term Contract

While securing a mortgage on a fixed-term contract is possible, it often comes with challenges. Some of the common hurdles include:

• Perceived income instability: Lenders may view your income as less reliable compared to permanent employees.
• Stricter lending criteria: You may face higher deposit requirements or more detailed scrutiny of your finances.
• Limited lender options: Some banks may avoid lending to fixed-term contractors altogether, reducing your choices.

Understanding these challenges upfront can help you prepare effectively.

How to Improve Your Chances of Approval

To increase your likelihood of getting a mortgage on a fixed-term contract, consider these strategies:

1. Build a strong financial profile:
   • Save for a larger deposit. A deposit of at least 20% can reduce the lender's perceived risk and eliminate the need for Lender’s Mortgage Insurance (LMI).
   • Maintain a strong credit score by paying bills on time and keeping credit card balances low.
2. Provide additional documentation:
   • Submit a letter from your employer confirming the terms of your contract and the likelihood of renewal.
   • Show evidence of past contracts, particularly if you’ve consistently had work in the same field.
3. Choose the right lender:
   • Some lenders specialise in working with fixed-term contractors and may have more flexible policies.
   • Engaging a mortgage broker can help identify lenders suited to your situation.

By demonstrating financial responsibility and providing clear evidence of income stability, you can improve your chances of mortgage approval.

Alternatives and Options

If you face challenges securing a mortgage on a fixed-term contract, consider these alternatives:

• Guarantor loans: A family member can act as a guarantor, reducing the lender’s risk and potentially allowing you to borrow more.
• Lower Loan-to-Value Ratio (LVR): Reducing the amount you borrow relative to the property value can make your application more appealing.
• Shared equity schemes: In some Australian states, government programs allow you to share ownership of a property, making it easier to enter the market.

These options can provide additional pathways to homeownership, even if your employment situation is less traditional.

Benefits of Working with a Mortgage Broker

Mortgage brokers can be invaluable for fixed-term contractors. They have expertise in finding lenders that accept non-traditional employment arrangements and can negotiate better terms on your behalf. Brokers also have access to a wide network of lenders, increasing your chances of finding a suitable loan. If you’re uncertain about your eligibility, consulting a broker is a good first step.

Our #1 suggestion for mortgage brokers in Australia is Eden Emerald Mortgages. We have worked with EE Mortgages on several occasions, and Shaun is extremely knowledgeable with fixed-term contract home loans. Reach out to him to get started on your journey of securing a home loan.

Conclusion

While securing a mortgage on a fixed-term contract can be challenging, it is far from impossible. By preparing thoroughly, providing comprehensive documentation, and working with the right lender or broker, Australians on fixed-term contracts can successfully navigate the process. As the workforce continues to evolve, lenders are becoming more flexible, making homeownership accessible to a wider range of borrowers.

If you’re considering applying for a mortgage, take the time to assess your financial situation, explore your options, and seek professional advice. With the right approach, you can overcome the hurdles and secure the home loan you need.