"This ambiguity of definition may be why the mainstream market cannot always accommodate the needs of many borrowers, but that in itself is an opportunity for the specialist lending sector."
Changing market dynamics mean that a greater proportion of the UK workforce are currently being underserved by some of the more traditional lending channels. These shifts are resulting in rising demand for customised residential lending options for borrowers with complex incomes, whether employed or members of the self-employed community.
A key factor when creating mortgage criteria is the long-term flexibility to mesh with evolving workforce demographics. For instance, the commercial risk of lending against the income of a second job varies significantly; it may form an important part of their salary or be the starting point of a business the borrower intends to cultivate as their main source of income in the future. This ambiguity of definition may be why the mainstream market cannot always accommodate the needs of many borrowers, but that in itself is an opportunity for the specialist lending sector. Meaning our underwriting questions must constantly evolve to reflect the nuances of the behaviour growing out of the contemporary economic landscape, so that we can quantify this as risk-based pricing.
The demand for flexible underwriting in the complex income field is strong. PeoplePerHour outlined that nearly one in five freelancers (19%) are now self-employed with a supplementary ‘side gig’ alongside an employee position. Almost two fifths of these (37%) said they started freelancing in the last 12 months, suggesting a spike in the number of second jobbers during the pandemic. Nearly a quarter (24%) of those freelancers surveyed said they had gone into self-employment to add to their main income.
During the pandemic, the PeoplePerHour platform reported its biggest rise in registrations for more than a decade. Almost a quarter of a million (227,000) people applied to use the platform in 2020, up from 136,000 in 2019. However, 98% of people with a second income stream said they plan to continue freelancing in some form. Importantly, 13% said they planned to take their side gig full-time, 22% said they planned to work part-time as a freelancer and 33% said they would continue freelancing alongside a full-time employee position.
People’s motivations for taking up freelancing were said to be overwhelmingly positive, with over half (55%) citing the desire for greater flexibility and over two-fifths (44%) saying they wanted to increase their income. The pandemic has been the driving force behind many people changing their employment status and how they earn – either through choice or necessity. It’s evident that many people are becoming more and more reliant on a wider variety of ways to generate income. As a result of this, here at Foundation Home Loans, we have been working hard to develop and implement a significant number of product and criteria-related enhancements to better service the ongoing mortgage requirements of the self-employed community and enable borrowers with complex incomes to access the mortgages they need within responsible underwriting boundaries.
Employment and personal financial scenarios will remain fluid for many borrowers in the current economic climate and there are no quick fixes to many of the challenges generated by the pandemic. Thankfully, a range of viable, responsible and accessible residential solutions are emerging across the specialist mortgage market and the intermediary market will remain key in unlocking the door to these types of solutions.