"For brokers with clients whose income falls outside the realms of mainstream lending, understanding the options available to these clients is imperative."
If the last few years have taught us anything, it’s that nothing is ever certain. The Covid pandemic, soaring inflation and the rising cost of living have all wreaked havoc on the budgets of many businesses and households across the country and significantly changed the dynamics of the workforce.
For some mortgage lenders and brokers, this is presenting new and unfamiliar territory as they find themselves faced with a growing number of people who now fall beyond the more traditional mainstream lending boundaries.
In some cases, this may be due to a credit blip incurred over the last few years. While for others, it may simply be due to having complex or irregular income stream(s) and not fitting with a “regular” employment description.
As a longstanding player in the specialist lending market, we have been dealing with this type of client for many years. We understand that self-employed borrowers can often face an uphill battle when applying for high street lending and that those with multiple jobs and irregular income streams can find it difficult to secure a competitive mortgage rate.
Yet addressing the needs of this growing demographic is extremely important given the fact that the number of self-employed people in the UK reached approximately 4.33 million in January 2024, up from 3.2 million in December 2000.
Similarly, the number of people working in the gig economy on a part- or full-time basis is expected to reach 14.86 million by 2026 as the changing shape of employment becomes more pronounced.
For brokers with clients whose income falls outside the realms of mainstream lending, understanding the options available to these clients is imperative. As is working with lenders who are well versed in non-standard mortgage lending and individually assesses and underwrites every mortgage application to ensure the best outcome for every client.
For example, some lenders will require two years’ worth of accounts for self-employed applicants, whereas others will consider the most recent year’s accounts. As a lender, we will consider the latest year’s salary and dividends or the salary and net profit although the applicant must have been trading for a minimum of two years. A 5.5 x income product is also available, provided someone earns over £50,000 as a sole applicant or £75,000 as a joint applicant.
If the applicant is a self-employed Construction Industry Scheme (CIS) worker, they can also be treated as employed instead of self-employed for borrowing purposes, provided they have worked for the same firm for six months. In this situation, we would average out the last three months’ earnings and multiply it by 52 weeks to assess affordability and borrowing capacity.
Recently, we have also experienced growing demand for borrowing among applicants on zero-hour contracts, as more and more people move to this type of employment. In cases such as these, applicants only require a history of six months on a zero-hour contract, with 50% of earnings used for affordability purposes if it is a second job unrelated to their main profession or 100% if it is their main job or a second job related to their main profession.
Understanding the differences between self-employed and complex income borrowers and knowing how to cater for their needs is critical in the current marketplace, where economic uncertainty and evolving social dynamics are changing the way people work.
Brokers with clients that fall into this category should ensure they contact a lender with a flexible approach to assessing the needs of clients with different types of income streams. Not only will this ensure each application is individually underwritten, it will also ensure the borrowing needs of your client are more than adequately addressed.
