This article was originally published on Your Money
While the property and mortgage markets continue to show positive signs of recovery – with increased funding availability, government initiatives and some of the lowest mortgage rates we have ever seen, the reality for those with more complex incomes is that it is still very difficult to obtain a mortgage, particularly from a high street lender.
The way some people – previously in good stable PAYE jobs – now earn a living following the onset of the economic crisis has changed, often due to redundancy or lifestyle choice.
According to the Office for National Statistics (ONS) there were 367,000 more people in self-employment in 2012 compared to 2008 – an increase of almost 10%.
There has also been much talk recently of an increasing use of ‘zero hour’ contracts – affecting an estimated 250,000 (ONS figure) to 1 million (Chartered Institute of Personnel and Development) workers.
Many workers also have more than one income source – possibly as a result of having two jobs or pension and investment income. What is emerging very clearly is a large number of ‘specialist’ customers that often don’t fit high street lender credit score systems which have generally failed to respond to changing employment and income types.
One such specialist lender, Kensington Mortgages, takes a different approach when it comes to assessing mortgages for those with less straightforward incomes. For example, most lenders require at least three year’s accounts and will generally take an average when calculating income for a self-employed applicant.
However, Kensington will consider someone with one year’s accounts and for those that have been building a successful business and have three years under their belt; they will take the latest figure – which is often the highest.
Other lenders such as Precise, Aldermore and Metro Bank will also look at cases on an individual basis.
Some lenders will also consider up to 100% of regular overtime and bonus as well as second jobs when assessing income and affordability compared to the 50% often used by most high street lenders. Again, much of this is exclusively available via mortgage brokers.
When it comes to ‘zero hour’ contracts – lenders are yet to fully establish their lending policy and criteria. Currently, many lenders just won’t entertain them full stop. But some will look more favourably as long as there is a track record of income earned on this basis – certainly a minimum of 12 months and ideally a couple of years.
They will require copies of P60s and payslips to establish an earnings pattern and verify that the stated level of income is actually sustainable. The lower the loan to value required, the greater the chance a lender will agree to do the mortgage. So again, this is an area where speaking to a good mortgage broker is vital in understanding the options that might be available.”
