Adopting a common sense approach to self-employment

The UK employment landscape is changing. Factors such as the pandemic and the cost of living crisis are impacting working patterns in various ways, leading to an increase in customers with complex financial situations.

These changes cover a whole spectrum of scenarios, from people who are seeking a better work/life balance to those taking on second jobs or additional income streams to make ends meet.

The result is a much wider variety of employment situations for lenders and brokers to navigate, including self employment, contractors (including short term), sole traders, freelancers, second jobs or a mixture of different types.

At the start of this year, there were 4.3 million self employed people in the UK, covering both full and part time. While this is still below pre-pandemic levels, the figure has increased in the last year. There’s also a suggestion from the Office for National Statistics (ONS) that some of the fall since the pandemic is partly due to people describing themselves as employees rather than self employed when the furlough scheme was created.

So self employment remains an attractive prospect for millions of people in pursuit of improved flexibility and control over their working life.

Added to that, we’ve seen a rise in people taking on additional income streams, such as a second employed job or a freelance contract. A recent study by Henley Business School found this applies to one in four UK adults who were mostly doing it to pursue a new passion, or because they wish to increase their household income in light of higher cost of living. The latter scenario applies to an estimated 5.2 million workers, the survey suggests.

But what does this all mean for lenders and brokers trying to help people secure mortgages?

As lenders, we need to adapt our mortgage solutions to meet the needs of this changing workforce. We can do this by accepting that people don’t fit into neat fulltime salaried boxes and adopting a more common sense approach to mortgage criteria and affordability.

It’s also about working closely with brokers to ensure they understand that there are options for clients with a more complex employment situation and what those options are.

At Bank of Ireland for Intermediaries, we’ve developed our Bespoke proposition for good quality complex cases. Our personalised, flexible service ensures that as long as your clients meet our five golden rules we’ll assess cases on an individual, common sense basis.

It means we can look at situations outside the ‘norm’, such as contractors with multiple contracts or gaps in contracts, those self employed with one year accounts, clients who work as locums and those in specialist industries such as barristers and dentists.

This approach is making a real difference to loan applications. For example, we were able to approve a loan of £1,249,500 at 85% LTV, where one of the applicants had become self employed in the last two years. The company was in the same industry they’d previously been employed in, but they wouldn’t have been able to secure the loan on standard terms with this employment history.

They were able to provide evidence that the company was performing well, including one year’s finalised accounts and the latest year’s net profit after tax and salary. While we would normally require evidence of dividends being received on standard terms, we were able to use the information provided for our income assessment to achieve the loan amount required, as part of the Bespoke service.

The focus is on taking the time to understand the complexities of individual cases and whether affordability can be met, even if it’s not through more traditional means.

Achieving successful outcomes in Bespoke cases also relies on good levels of communication all round, so that brokers understand our approach and when we can help, and are therefore well equipped to support a wider variety of borrowers.

We’ve significantly invested in our services to intermediaries and clients, including a new ‘working with us’ hub where all the resources needed at every stage of the application can be accessed. This is in addition to Intermediary Live Chat and a daily underwriting surgery where our Business Development Managers can speak to underwriters about individual cases.

The result is a common sense approach for complex cases, with consistency from enquiry to offer, and brokers who’re able to keep their clients updated at every stage of the journey.

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