Thinking Cleary: Self-employed opportunities beckon

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According to the latest figures from the Office for National Statistics, self-employment is at its highest point since records began 40 years ago, with 15 per cent of UK workers now self-employed. 

This growing group of people is probably the most in need of specialist lenders because so many high-street lenders appear not to be interested in them. It is not just the self-employed but pretty much any person in non-standard employment seems to be classed as “too difficult” by most lenders. 

Aldermore has recently said it will be developing products for the self-employed and Kensington already has a good proposition so this does appear to be a market that challenger banks and specialist lenders are well suited to. 

Precise Mortgages is also very active in this market, with about 60 per cent of our buy-to-let and 30 per cent of our residential mortgages being advanced to self-employed people.

This looks like a tremendous opportunity for mortgage intermediaries because the high-street lenders not being interested means virtually all self-employed borrowers will or at least should be catered for by the intermediary sector.

Here are some interesting facts from the ONS about the record number of people who are self-employed:

  • Self-employment is higher than at any point over past 40 years
  • The rise in total employment since 2008 is predominantly among the self-employed
  • The rise is predominately down to fewer people leaving self-employment than in the past
  • The number of over-65s who are self-employed has more than doubled in the past five years to reach nearly half a million
  • Self-employed workers tend to be older than employees and are more likely to work higher (over 45) or lower (eight or less) hours
  • The number of women in self-employment is increasing at a faster rate than the number of men (although men still dominate self-employment)
  • The most common roles are working in construction and taxi driving and in recent years there have been increases in management consultants
  • Average income from self-employment fallen by 22 per cent since 2008/09.

A concept that does not often get any coverage is the birth rates and death rates of businesses over time. 

The figures simply focus on changes in the registered business population and are publicly available via the ONS website. The tables show the number of companies that were launched/folded for every 100 firms in a particular region. For example, 11.4 firms started up for every 100 existing firms in the North-east in 2012.   

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This data can be used by lenders as part of their credit risk assessment of the self-employed population. 

Our experience is that self-employed borrowers where income verification has taken place have a lower likelihood of going into arrears than a PAYE borrower.  So why is it then that a PAYE borrower normally only needs to have a 12-month employment track record but a self-employed borrower normally needs a three-year track record?