Comment: Entering the age of the millennial mortgage

At the recent Mortgage Strategy Leaders Forum, I chaired a number of interesting sessions for Secure Trust Bank on the gig economy and mortgages for millennials.

The average first-time buyer is 30 years old, which means there’s a good chance that millennials make up a significant proportion of your first-time buyer client base and will soon represent a growing proportion of your home mover and remortgage business.

Deloitte recently published a report based on the views of more than 10,000 millennials across 36 countries. The study targeted people born between January 1983 and December 1994 and specifically those who had college or university degrees, were employed full time and worked predominately in large, private-sector organisations.

It found that among the group, 43 per cent intended to leave their jobs within two years and amongst those, 62 per cent regarded the gig economy (taking on short-term contracts or freelance work) as a viable alternative to full-time employment.

The allure of the gig economy is not just confined to those in junior roles—in fact, quite the contrary. The study found that 70 per cent of millennials who are currently members of senior management teams or on boards would consider taking on short-term contracts or freelance work as an alternative to full-time employment. This compares to 57 per cent of those in junior roles.

And their reason for doing so is a pragmatic one. More than six in 10 millennials who would consider gig employment cited the potential to earn more money as the primary factor, with flexibility and freedom as secondary considerations.

With such a wave of sentiment moving towards more informal employment, what does this mean for you?

In recent years, lenders in the mainstream and specialist markets have recognised the shift towards contractual employment and the number of mortgages available to contractors has grown.

Typically, a contractor mortgage will use the day rate charged, multiplied by five to establish a weekly rate and then multiplied by 46 to provide a reasonable figure for annual income, assuming holidays and time between contracts.

This is a good approach for assessing affordability and, for contractors who have seen an uplift in earnings compared to their salary as an employee, it can support lending on their higher income.

So far, so simple. But what if a contractor wants to exercise some of the freedom and flexibility they sought when they chose their line of employment?

The lending options for contractors who do not fit the usual mould can be much more limited. If, for example, a worker is able to earn enough money over the course of 10 months and chooses to take the summer off between contracts, they may struggle to secure a mortgage with some lenders.

Similarly, workers who are in their first contract, approaching the end of a contract or want to use multiple contracts towards affordability may find their situation is too complex for a standard contractor mortgage.

Not all contractor mortgages are created equally and, even in a digital age, there are many circumstances that require a human touch, with qualified underwriters who can use criteria as an intelligent guide, not an insurmountable hurdle

If the opinions expressed in the Deloitte research are anything to go by, you can expect to see growing numbers of applicants who want a flexible, manually underwritten contractor mortgage to match the freedom and flexibility of their lifestyle.

How long will it be until we see a specialist lender offer this type of product badged as a Millennial Mortgage?

Tony Hall is sales and marketing director at Secure Trust Bank Mortgages

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