Varied income sources should not dent borrower prospects

Perhaps the most important responsibility of any mortgage lender is calculating affordability. Lessons from the past have been learned, and all lenders are well aware of the need to be more robust in ensuring that any mortgages provided are entirely affordable, not just today but in the future should circumstances change.

However, those calculations have become a little more involved. There are now 4.4 million self-employed workers according to Government figures, while the Office for National Statistics believes around 1.3 million people have multiple jobs.

And that apparent complication can prove extremely significant for brokers and their clients when it comes to raising the necessary funds.

Multiple income streams

One of the frustrations we often hear about from brokers is the rigid attitude that lenders can have towards income sources. It’s fine if the borrower’s income is entirely predictable, as they are a regular employee. However, if the client happens to be self-employed, or has multiple income streams, then calculating affordability becomes much slower and more cumbersome.

We had a case last year which illustrated this well. The broker came to Atom bank after a high street bank had consistently struggled to process a mortgage application for a client who had both self-employed and employed income.

The borrower was an existing customer with the bank, and had supplied all necessary documents including a self-assessment. And yet months down the line, the bank had been unable to provide an offer, leading to incredible stress for the client whose purchase deadline was looming.

Buying a house is difficult enough, without going through the upset of being left in the lurch by a mortgage lender.

Getting the whole picture

For brokers, it’s crucial to identify the lenders who have the processes in place to handle these apparent complications. They want to know that if they are presenting a case, the lender will be able to take into account the whole picture in order to make an informed decision. They don’t want to feel that anything out of the ordinary - or which at least appears to be somewhat ‘colourful’ - about the case will hold it up, or even cause it to come off the rails.

For example, a borrower who is a contractor and has a few different jobs going consecutively, or a self employed company director who is relying on their share of pre-tax profit, can prove too complicated for some lenders.

There are different approaches to dealing with these cases. There are lenders who will trumpet the value of entirely manual underwriting, and the fact this approach allows them to get to grips with the intricacies of a particular case. They blame the ‘computer says no’ mindset for high street lenders struggling with applications where income sources are a little more varied.

The issue isn’t with technology, however, but rather how it is utilised. Modern lenders who have invested in the right infrastructure, and who understand the nuances of working with borrowers with complicated circumstances, are just as viable. The combination of technology and in-house expertise means complexity around income sources can be overcome, and quickly, putting the borrower in an informed position within a matter of hours, rather than weeks.

Future-proofing mortgages

The reality is complexity is going nowhere. As the jobs market continues to evolve, it’s fair to expect that brokers will continue to see a host of borrowers who have more complicated arrangements, particularly around income.

Lenders cannot afford to stand still. As an industry we need to adapt too, put in place the processes and systems which allow us to accurately assess affordability as it really stands, rather than picking and choosing the elements to consider.

Any lender who is serious about backing the next generation of borrowers, rather than focusing on the most narrow, vanilla subset of homebuyers, will want to make those investments. And for brokers, the task is to partner with lenders who are forward-thinking and able to deliver for borrowers whether they have a single income source or multiple.

For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.