Mortgage market softens to contract workers

Wednesday 21 August 2013

Over the past few years contractors and the self employed have faced a challenge when applying for home loans.

Prior to the financial crisis, freelancers, contractors and those who were self employed could apply for a self-certification mortgage. These home loans required the worker to be honest and give an accurate account of their income, as no proof of the claims was required.

When banks tightened their belts during the recession, these self-cert loans were considered too risky, and the options for people not earning a fixed salary were low. Although self-cert loans provided a vital service for contractors, they were also a target for less scrupulous borrowers.

However, a mortgage broker speaking to the Financial Times has suggested that things might be about to change. Andrew Montlake, of mortgage broker Coreco, told the newspaper that the rise in the number of people being self employed as a result of the poor jobs market is certainly a factor.

“We have seen a shift in the way people work over the past few years, especially within the City of London where many traditionally employed people have switched to contracting or freelance,” he said.

With traditional forms of employment scarce, more and more people have taken the step to work for themselves. Figures from the Office for National Statistics revealed that in the four years to February 2013, the number of self-employed people increased by 367,000.

However, the real uptick has been seen more recently, with 60 per cent of that rise occurring between 2011 and 2012. The findings also revealed that self employed people tended to work longer hours and be older than the average employee, but also was more likely to be male.

As Mr Montlake said, the highest proportion of self employed or contract workers was in London, with 18 per cent of all workers, compared to 11 per cent in the North East.

“Lenders have been a little slow to understand this type of contract, which is after all not necessarily any more risky than an employed position. But it is pleasing that in recent months more lenders have begun to shift their criteria to cater for these working habits,” said Mr Montlake.

He was speaking in reference to the move by Halifax to make its standard mortgage range available to contract workers. This step has a proviso that they have worked in the same field for more than a year - and can provide evidence of that - and earn at least £500 per day or £75,000 per year gross.

Previously, only those who worked in the IT sector could apply for a mortgage based on their contractual rate. Although it is a small step, it illustrates that banks are noticing a change in the way people work.

John Yerou, managing director of Freelancer Financials, told the Daily Mail:"This is a major milestone for the UK’s freelance community as it unbolts the contract based mortgage market to any professional freelancer.”

Anyone who doesn’t fit the criteria will still have to apply as self employed and supply three-years of tax returns as evidence of their income over a period of time.

By Victoria McDonnell

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