Lenders recognise the needs of contractors but complexities remain – Secure Trust

There is little doubt that the millennial generation, many of whom are now approaching their mid-thirties, face a tougher challenge to buy their first property than previous generations.

At the beginning of 1983, the first-time buyer house price to earnings ratio for baby boomers was 2.7, according to Nationwide.

At the beginning of 2018, the first-time buyer house price to earnings ratio was 5.2, which is as high as it has ever been.

Life is more expensive for millennials and, as a result, many are choosing alternative career paths to their parents.

No signs of slowing

Deloitte recently carried out research among more than 10,000 young adults across 36 countries, targeting people born between January 1983 and December 1994.

It specifically aimed at those who had college or university degrees, were employed full-time and worked predominately in large, private-sector organisations.

It found that 43% of participants intended to leave their jobs within two years and among those, 62% regarded the gig economy (taking on short-term contracts or freelance work) as a viable alternative to full-time employment.

For more than six in 10 of those who would consider this path, the primary reason for doing so was to earn more money.

What’s more, the allure of the gig economy is stronger among senior managers and board members, with 70% saying they would consider taking on short-term contracts or freelance work as an alternative to full-time employment, compared to 57% of those in junior roles.

This would indicate that the trend we have seen in recent years towards self-employment shows no sign of abating and that means you are likely to encounter more clients looking for contractor mortgages, particularly first-time buyers.

Complex situations

Lenders have recognised the shift towards contractual employment and the number of mortgages available to contractors has grown.

But not all contractor mortgages are created equally.

Just because a lender can assess affordability based on a contractual day rate, it does not necessarily mean that lender can also be considerate to other circumstances that fit with this type of employment and lending options can be much more limited for contractors who do not fit the usual mould.

If, for example, a worker is able to earn enough money over the course of 10 months and chooses to take two months off between contracts, they may struggle to secure a mortgage with some lenders.

Similarly, workers who are in their first contract, approaching the end of a contract or want to use multiple contracts towards affordability may find their situation is too complex for a standard contractor mortgage.

So, it is likely that a growing number of millennials will want a flexible, manually underwritten contractor mortgage to match the freedom and flexibility of their lifestyle.