Why do banking institutions restrict financing without a permanent contract?

The risk analysis model of financial institutions relies on the long-term predictability of income. A mortgage transaction usually involves payment commitments extending over two, three, or four decades. For this reason, credit risk departments primarily evaluate the continuity of salary flow.

When an applicant holds a fixed-term contract or is currently passing a probationary period, the bank perceives uncertainty regarding income stability. In the case of a probationary period, employment law allows the termination of the employment contract without the need to state justified causes or pay compensation, which raises the implicit short-term default risk.

Nevertheless, the approval decision does not depend on a single factor. Banks use automated credit scoring systems combined with the judgment of risk committees, weighing the client's overall financial and asset profile.

Key factors for securing a mortgage with a temporary contract

To offset the lack of a consolidated permanent contract, it is necessary to present elements that reduce the transaction's risk for the lending institution.

1. Continuity in working life and professional sector

Institutions pay special attention to full employment history. A professional who has linked consecutive temporary contracts without long gaps within the same sector demonstrates real employability. For risk analysts, sector continuity indicates that the worker will quickly re-enter the labour market if their current contract ends.

2. Low Loan-to-Value ratio (LTV)

The mortgage market standard caps financing at a maximum of 80% of the purchase or appraisal value. However, when applying for a mortgage with a temporary contract, contributing a higher proportion of equity drastically reduces the required financing percentage (Loan to Value or LTV). If the requested loan represents 60% or 70% of the property's value, the bank's risk decreases significantly, facilitating approval.

3. Including a co-borrower with a permanent contract

Adding a second applicant with job stability and sufficient income to the application immediately strengthens the transaction's solvency. In these scenarios, the permanent co-borrower's income serves as the primary support for calculating the maximum permitted debt ratio, which usually does not exceed 30% or 35% of net monthly income.

4. Providing guarantors or collateral

Having personal guarantors with stable income or unencumbered real estate acts as a secondary guarantee of payment. The presence of guarantees on the transaction reduces the capital reserve requirements imposed on the bank by regulatory authorities, improving the feasibility of approval.

Special cases: Temporary civil servants and specific profiles

Not all temporary employment statuses are assessed in the same way by banking institutions. Specific job roles receive differentiated treatment during feasibility studies:

• Interim public administration staff: Interim civil servants or statutory healthcare and education staff are usually evaluated favourably if they can demonstrate several years of continuous service for the public body.
• Sectors with high professional demand: Professionals in highly specialised sectors, such as technology, engineering, or healthcare, typically show high employability levels that soften the temporary nature of their contract.
• Officially Protected Housing (VPO): When purchasing properties with public protection status within the Comunidad de Madrid, access conditions and applicable financing are subject to compliance with wealth and income limits set by current regional regulations.

What happens during the probationary period of a permanent contract?

Being under a permanent contract does not guarantee immediate approval if the stipulated probationary period has not yet been completed. During this window, most banks pause the formal processing of the binding offer until the worker submits an employer certificate or relevant payslip confirming the definitive completion of said period.

An exception exists when joining a new company represents a direct professional advancement within the same field and without gaps in employment history between jobs. In such cases, providing the previous contract and proof of salary progression makes it possible to justify the transaction's viability to the risk department.

The importance of submitting the application through professionals

When employment status does not align with standardised retail banking parameters, applications processed directly at branches are often rejected by initial system filters. Working with mortgage credit intermediaries allows documentation to be structured analytically, highlighting profile strengths and negotiating directly with risk departments across multiple lenders simultaneously.

Steps to prepare a mortgage loan application

1. Obtain an up-to-date employment record: Verify the absence of contribution gaps before starting the property search.
2. Clear existing debts: Pay off personal loans or credit cards to minimise the prior debt ratio.
3. Consolidate savings: Have at least 20% for the deposit plus an additional 10% for purchase costs and taxes.
4. Gather supporting documentation: Collect previous contracts, university degrees, or professional credentials proving qualification and employability.
5. Seek specialised advice: Evaluate financing options before signing preliminary deposit contracts (contratos de arras) that commit financial funds.