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Feature: Catering for ‘complex’ borrowers

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‘The times they are a-changin’ Bob Dylan once sang, and this has never been truer when it comes to the needs of mortgage borrowers.

The working demographic is transforming and a growing number of incomes are no longer derived from a standard nine to five job but from self-employment, bonuses, contract hours and other varying forms of income. This escalating complex workforce doesn’t always fit — let alone tick — all of the right boxes when it comes to some lenders’ criteria. So, is enough being done to help them?

Specialist vs mainstream

For those borrowers who may not fit the standard mould, the status quo has always been to steer them towards the more specialist mortgage lenders. Yet with around 4.8 million self-employed workers in the UK in 2017 — 15.1 per cent of the workforce — is it time such borrowers were moved into the mainstream?

Together Group intermediary relationship director Richard Tugwell says because of the rise of ‘gig economy’ there are more people working as sole traders, self-employed directors, contractors and freelancers and they can struggle to get a mainstream mortgage. The lender has seen the number of mortgages and loans written for self-employed people increase by around a fifth since December 2017.

“Earlier this year we carried out research with the Federation of Small Businesses which revealed that one in five self-employed workers warned that difficulties obtaining bank finance could force them back into full time employment, which we find concerning,” he says.

“We should be encouraging and supporting entrepreneurs, not penalising them. There are specialist finance providers that cater specifically for the self-employed and those with other complex incomes, but we’d want to see easier access across the board,” he says.

JLM Mortgage Services director Rory Joseph feels that, rather than cutting margins and chasing the same business in a highly competitive space, high-street lenders would be better served thinking of innovative ways of assisting other customer groups. “They are obviously securing business from the mainstream employed market,” he says “but to give you an example of one fallacy of that model, a person could work at a new start-up PAYE for six months and be mortgage-able on the high street.

“The owners of that business, however, would need to wait another six months and pay significantly more. “It would be another three years before the owners would be as mortgage-able as the employee, yet in reality, neither is more secure from an income risk position,” he says. managing director Richard Merrett says a lot of mainstream lenders have stepped up to help borrowers with complex incomes and there are some great specialist lenders in this space but more can be done.

“People want a lender that can offer a manual underwrite at mainstream pricing,” he says. “In a competitive market, lenders have streamlined their processes to provide good service as a differentiator. However, good service is not just about speed, but addressing a borrower’s circumstances in the appropriate way.

“If you look at the success stories of recent years, they have been from lenders that have offered something different,” he says.

Merrett believes borrowers would pay a slight premium to get the mortgage they need, as long as the rate is not way off the rest of the mainstream market.

Outside the box

Just Mortgages and Spicerhaart group operations director John Phillips feels there is very much a ‘computer says no’ approach from lenders. “Lenders need to be able to either offer a better range of products, be more tailored for individual cases, or both,” he says. Phillips believes that after 2007/8 and increased regulation from the Financial Conduct Authority, lenders have become very nervous. “I think they would like to be able to help people with complex incomes but they are too concerned to look outside the box,” he says. Another difficulty lenders face is adjusting their systems. “Often the difficulty for mainstream lenders is that their systems and processes are not designed for anything other than vanilla type deals and changing their systems and processes is an expensive and time-consuming business,” says Precise Mortgages managing director Alan Cleary. He does however expect that if the market becomes big enough we will see some mainstream lenders become involved. There has been a notable desire from one segment of the mainstream lending community to help those with complex incomes, says London & Country Mortgages associate director communications David Hollingworth. “Small building societies have fared well when it comes to those with complex incomes,” he says. “In particular they have been very innovative when it comes to older borrowers and the bigger lenders have played catch-up on that front.”


The self-employed market is one area where lenders have the power to be more flexible believe brokers. “Self-employment, in some respects, offers greater security of income than employment,” says Joseph. “For instance, we have seen job cuts announced recently by a number of large retailers and banks. Yes, self-employed income may vary, but it is unlikely to cease through redundancy.” He says the averaging of two or three years’ income, especially on low loan-to-value remortgaging, seems to exclude many borrowers. Hollingworth believes as this market expands, we are likely to see something of a shift from mainstream lenders. “What we are more likely to see are criteria tweaks than mainstream lenders letting loose of the reigns completely,” he says. One such tweak might be to the required trading history of a self-employed borrower, he says, which for most lenders is currently around two years. Perception Finance managing director David Sheppard would like to see lenders consider some of the outgoings that the self-employed can legitimately put as an expense that an employed person would have to pay from take home income, such as mobile phone bills and home office costs.

“When lenders only work to net profit where these have already gone out, they again are not reflecting the true affordability of the applicant,” he says. Merrett says it has been encouraging to see more lenders start to look at retained profit and the last year’s accounts for self-employed borrowers and an increasing number of lenders accepting 100 per cent of bonus for employed borrowers. “A lot of lenders have introduced more favourable terms to segments of the market and the best example of this is lending to contractors, where many high street lenders have enhanced their criteria,” he says.


When it comes to affordability, Sheppard would welcome more flexibility. “Airline workers earn some of their income tax free when they are flying but not all lenders will use that when assessing affordability,” he says. “This tax-free income situation also comes up with Embassy staff where employees in foreign embassies in London are taxed in their home country. So their gross UK income is not subject to income tax but lenders will still apply standard affordability to this despite their ability to repay being better than someone who does not have this set up,” he adds.

“Ultimately for the employed, I think a lender that looks at take home pay rather than gross income would be able to get some headlines and good applications in doing so,” he says. “The trouble with the UK market is that innovation is not always easy with trying to adhere to regulatory requirements,” he says.

Another area where brokers would like to see more movement is around older borrowers. “Lenders have been very good at increasing their maximum ages but are still restrictive when it comes to the type of income they will consider when a borrower exceeds state retirement age and this limits how much they can borrow,” says Merrett. “Where guarantor mortgages are available, borrowing can be limited because of the restrictive way that lenders assess the affordability of older borrowers,” he says. Lenders may also need to start clarifying how they assess a borrower’s pension and the use of drawdown. “If borrowers are drawing down on their pension pot will they still be viewed as having a reliable income?” says Hollingworth.

It would be helpful in general, he says, if lenders were at times more transparent as to what criteria they will and won’t accept. Although he says this can work to the benefit of brokers as they can use their knowledge of the market, it can cause frustration at times. “For zero hours workers some lenders can be pretty scant on information on what they will and won’t accept,” he says. “Although it is not easy for lenders to cover every eventuality, it’s better to be saying no than ‘we will refer it’ when they may not be able to help,” he says.


One lender cannot cater to every type of borrower and brokers would not expect this but a little elasticity when it comes to those whose income may be more complex is what is being called for.

“Brokers will start to see an increasing demand from clients with complex income requirements because people’s situations are becoming more complex and as house prices remain high there will always be a need to consider as much of their income as possible,” says Merrett.

Specialist lenders, building societies and some mainstream lenders have gone to great lengths to help those with complex incomes but there still seems to be a notion amongst some that such incomes are undesirable and riskier than those in more mainstream employment. By sticking to the mainstream market and not thinking outside of the box lenders appear to be missing out on a great opportunity for high-volume business.



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