When I think back to the days of the credit crunch and the global recession that followed there are some images that immediately come to mind and provide a sort of short-hand narrative for the events.
One of those is that of unfortunate employees of lenders, banks and finance companies leaving their offices with their work belongings in cardboard boxes. It’s an image that seems to sum up the human cost of those times.
Looking at those people who had just been laid off, I often think of what they did next. No doubt a number will have continued in new roles at other firms but a large percentage of them, and others laid off in related industries as consequence of tougher times will have looked to branch off on their own. We are all aware that the number of self-employed and/or contractors has increased steadily over the past six/seven years and, with a growing number opting for this type of employment, it has raised a number of issues for the lending community in its ability to provide finance to people with this status.
It’s also fair to say that, up until very recently, the newly self-employed/contractors were not very well served by the lending community. Indeed, very few lenders were actively lending to these individuals and those that did were tending to use old criteria which, to be frank, lessened the chance of securing a loan. Thankfully over the course of 2014 hardened attitudes began to thaw as I believe lenders recognised this growing demographic and their need for loans.
We now have lenders with product ranges specifically catering for either those on fixed, rolling, temporary, zero hours or agency contracts, and those self-employed who have one or a number of contracts with different companies. Lenders such as the Halifax, Metro Bank, Skipton for Intermediaries, Virgin Money, to name but a few will now look favourably on clients’ income from both these points of view and have tailored their criteria specifically in this area.
For example, Halifax will consider both employed and self-employed options. If a client has continuous 12 months employment with at least six months remaining on the contract or the customer has two years continuous service in the same type or employment, then they are good to go. Similarly, Metro Bank considers contract workers with at least one year’s experience of working on this basis and will take the value of the contract, multiplied by 46 weeks, in order to ascertain borrowing capacity. It also allows individuals to have multiple contracts and accepts them using an umbrella company to pay their tax.
We have come a long way from a more stringent approach to criteria, where contract workers found it incredibly difficult to get a mortgage and self-employed individuals needed to stump up three years’ of accounts to even get a look in.
The work and changes that have been implemented in this area is a credit to those lenders active in this sector and a very true example of the way lenders are willing to work with brokers, distributors and their clients to develop product and criteria solutions for those that might fit outside the traditional norms. Long may this continue and let’s support other lenders moving into this space in order to develop what is fast becoming a long-term, and most critically, a competitive sector.
Bob Hunt is chief executive of Paradigm Mortgage Services