"Lenders that take an automated approach tend to put restrictions on the level of additional or self-employed income they are able to consider. "
In some situations, a specialist lender could provide the best option for your client because of the way it considers affordability. This isn’t to say that specialist lenders take a more relaxed attitude to affordability. If your client is self-employed, earns multiple incomes or has a more complex income structure, a specialist lender could be better equipped than an automated high street approach to properly consider their true earnings.
A growing problem
The latest research by the Institute for Fiscal Studies says that, even with a 10% deposit, only around 60% of young adults are able to borrow enough to buy even one of the cheapest homes in their area.
This compares to 1996, when more than 90% of 25-34 year olds with a 10% deposit would have been able to purchase a house in their area if they borrowed 4.5 times their salary.
During this period of house price change, employment patterns have also been shifting. The number of self-employed workers has increased from 3.3 million people (12.0% of the labour force) in 2001 to 4.8 million (15.1% of the labour force) in 2017.
Part-time employment has also increased, from 7.9 million in 2010 to 8.5 million in January 2018, and ONS data indicates people working on a part-time time basis are more likely to earn additional sources of income that they might want to include as part of a mortgage application.
Homebuyers now rely on a more diverse selection of income sources to demonstrate their affordability and this can make it more complex for lenders to calculate how much they are able to borrow.
Consequently, lenders that take an automated approach tend to put restrictions on the level of additional or self-employed income they are able to consider. However, a specialist lender, that uses experienced underwriters to assess an applicant’s individual circumstances, might be able to use more of their income if they have evidence that this is sustainable.
Complex income? Think specialist
If you believe specialist lenders are an option for failed credit scores only, think again. Last year the most popular reason for clients to take a mortgage with Pepper Money was because they had complex or multiple income sources.
In the right circumstances, a specialist lender that is able to assess your client’s individual circumstances could be the right choice if it can help them to overcome the affordability challenge.
