Recent research from employee benefits provider Unum UK found that just under one-quarter – 24% – of employees are looking to get a second job to cover the rising cost of their outgoings.
This need to increase their income is felt most by those aged between 16 and 34, with 28% of this age group planning to find a second job to help cover expenses.
For mortgage borrowers, in addition to the increased cost of living, many who have remortgaged over the past couple of years have likely seen their monthly repayments increase. This too could potentially motivate them to seek other sources of income and part-time work to improve their affordability.
While a growing number of younger borrowers may be looking for second jobs, the same applies to older borrowers who have perhaps also had to rethink their finances. A rising retirement age and increased mortgage costs mean there is a potentially growing number of borrowers over 50 who are also looking to supplement their income.
According to analysis from the digital community Rest Less, the number of people aged 50 and older with a second job has increased by more than 100,000 in the last 10 years to 440,352. Its analysis found that of the 1.27 million people in the UK with a second job, 35% of them were aged 50 and older, an increase from 31% over the last 10 years.
A minefield for some lenders
From contractors, self-employment and zero-hours contracts – the sheer scale of potential second jobs on offer can make it a bit of a minefield for some lenders when it comes to assessing such borrowers’ incomes.
A second income may fluctuate or be irregular, and as such, it may make it harder for lenders who don’t operate a manual approach to determine just how the extra income can help an applicant’s affordability.
A borrower with more than one income source or a complex income requires a lender to take more of a manual approach, to look at the entire income of the borrower and not just focus solely on one income stream.
Now, more than ever, it is increasingly important that lenders take into account as many sources of income as they can, especially if affordability is borderline. Being able to assess each borrower on an individual basis can provide a deeper insight into a borrower’s affordability.
A lender who simply relies on an automated system or, worse still, ignores additional income altogether, risks overlooking a client’s true borrowing potential and how much they could afford to repay.
By properly assessing all forms of income, this may lead to increased affordability.
Second jobs not limited to low-income borrowers
Of course, when we talk about complex incomes, it doesn’t just apply to those who perhaps need to take on a second job to supplement their income. There are also many wealthy borrowers who may have complex or multiple income streams.
This could include borrowers who earn regular commissions or entrepreneurs and business owners who might have income from various sources, such as bonuses, vested shares, or property.
For this type of borrower, accurately assessing their affordability and taking into account as much of their overall income as possible can be equally important.
The same can be true of expat borrowers – many of whom can often earn high incomes. However, if they receive salaries in less common currencies, they may struggle to find a mortgage to fit their needs.
For some lenders, borrowers with complex or second incomes can be seen as too complicated when it comes to assessing affordability, especially if the income is irregular or fluctuating. Lenders who rely solely on automated processes to assess affordability may fail to take into account all income streams.
We know from our own experience that using a more manual process and assessing a borrower’s income in a bespoke and personal way can lead to better outcomes.
As borrowers continue to look for ways to supplement their income and increase their affordability, it is important that this is matched with an appetite from lenders to help those whose incomes fall outside of the regular pattern. As working patterns change, we must be prepared to adapt as an industry.
Brokers and lenders like ourselves are well-placed to understand the difficulties that borrowers with more complex income streams face. This understanding is important for advisers and lenders alike, as it enables us to help less-conventional applicants feel less alienated by the mortgage process.
