Employment and housing demographics have altered greatly – so lenders and politicians should both act accordingly
The ONS has recently published employment statistics under the title UK Labour Market: July 2016. The thing that jumps off the page is the rising number of self-employed people and the growth rate in self-employed roles.
There were 31.7 million people employed at the end of May 2016 – around 624,000 more than the year before – and the overall employment rate of 74.4 per cent is the highest since records began in 1971. The number of employees increased from last year by 319,000 to 26.7 million, representing 84.2 per cent of all people in work. The number of self-employed people rose by 300,000 to 4.79 million, representing 15.1 per cent of all people in work. The remaining 0.7 per cent were people on government-supported training schemes or in unpaid family-related jobs.
You can see from the stats that the growth in self-employed jobs is increasing at a much faster pace than that of employed roles, yet it continues to be the case that self-employed people find it much harder than employees to secure a mortgage.
Most lenders require more proof of employment from self-employed people than they do from employees, the most common difference being a two- to three-year history compared to 12 months for employees. Obviously, there is additional risk for the lender in taking on a self-employed borrower but the differential in the underwriting and documentation required is disproportionate.
A few lenders, such as Precise Mortgages, specialise in catering for the self-employed and have the risk management processes and skilled underwriters in place to ensure a good outcome for both borrower and lender.
The slightly odd situation is that many lenders want three years of audited accounts from a self-employed person (which in practice means they must have been trading for nearly five years) but, if an employee of that same firm applied, they would need only their latest P60 and three payslips.
This is not the only area in which the landscape is shifting; housing tenure is also in the headlines. Homeownership is at its lowest for 30 years and the housing crisis is moving north, with Manchester experiencing the biggest decline of any major UK city. This is not new news – the private rented sector has been increasing for 25 years and the success of buy-to-let finance has been instrumental in its growth.
The PRS is playing an ever-increasing role in society and, while it is undeniable that many people cannot afford to buy their own home, there is also a sizable number who choose to rent. Once considered a tenure of last resort dominated by students and younger generations, the PRS now comprises a more diverse tenant population. While still popular with those in higher education and young professionals, it is also now a sector with more families and older generations too.
Unfortunately, our politicians continue to use the housing market to score political points and win votes, and the continued assault on the buy-to-let market and the demonisation of landlords both need to stop before serious and permanent damage is done. Buy-to-let gross lending in the second quarter, after the stamp duty deadline had passed, was significantly down, notably driven by purchase transactions that have declined by around half.
I hope politicians and policymakers will pause for breath before making any further fundamental changes to this increasingly important market, allowing it to assess the impacts of tax changes, tighter underwriting standards and, of course, the uncertainty caused by Brexit.
Alan Cleary is managing director of Precise Mortgages