"The borrower may have a somewhat unusual employment history, or a variety of income sources, but that doesn’t automatically mean the risk is completely unacceptable."
The jobs and the employment market has been a hot topic of late. Recruitment experts suggest that it’s a great time to be a job hunter, with employers struggling to fill vacancies - there are currently around 1.16 million job vacancies according to official figures.
Whilst the bunfight for staff appears to be healthy for employees, it’s worth noting that the way that people are employed can vary significantly.
The number of people employed on zero hours contracts has grown substantially in recent years. The most recent figures from the Office for National Statistics suggest that between July and September of 2022, around 1.05 million people in the UK were employed on this basis. That works out at around 3.2% of the current workforce.
By contrast, back in 2018 there were around 844,000 workers on zero hour contracts, while in 2012 the figure was just 252,000, which at that point worked out at around 0.8% of the workforce.
There are many reasons for this growth. For employers, there are benefits to having staff work in this way, as it can mean they are more nimble and agile in responding to changes in demand for their products and services. Similarly, the flexibility offered to staff can be valuable - they have more autonomy over the hours they actually work and can respond to seasonal peaks and troughs.
Unfortunately, having such an employment contract can prove difficult when it comes to accessing the housing ladder.
Red flags
Mortgage lenders take risk seriously, as they should do. It is in no one’s interest for lenders to hand out home loans to those who are going to be unable to meet their repayments.
However, lenders take varying approaches to assessing that risk, with many employing what is essentially a tickbox tactic. They go through an application and if there is anything particularly out of the ordinary, then that is enough for them to turn it down.
Despite the fact that more than a million people in the UK are currently on zero hours contracts, there are plenty of lenders who simply will not consider lending to them. That lack of certainty around income is enough for the lender to rule out the mortgage straight off the bat.
It’s not just zero hours contracts, either. Borrowers who have only been with their employer for a short spell can also experience issues in getting hold of the mortgage they need in order to purchase a home.
Doing away with the tickbox
At Mansfield Building Society, we take a different approach. There is no tickbox when it comes to assessing a mortgage application - instead our underwriters are empowered to go through the case in detail, so that they build a fully rounded impression of the borrower and their application.
Yes, the borrower may have a somewhat unusual employment history, or a variety of income sources, but that doesn’t automatically mean the risk is completely unacceptable.
Rather than view these as an immediate red flag, and a reason to walk away from the case, we recognise that they are simply a feature of the application. On their own, those facts don’t need to be a reason to turn down an application, but you can only make a reasoned decision if you have got to grips with the entirety of the case.
Zero hours contracts are just one example of how the world around us is changing. Brokers will know only too well that the number of what once would have been described as ‘vanilla’ clients are on the decline, which can make it more problematic placing cases with high street lenders who rely on that tickbox approach.
However, there is a breed of lender, like Mansfield, who are more flexible and who are better placed to support those clients who fall outside the vanilla boundaries.
