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Recession leads to a million more self-employed

Nearly a quarter of all self-employed workers have been their own boss for less than two years, according to research carried out on behalf of Kensington.

The survey found that 24% of people who are self-employed have been so for less than two years.

Given that the research also found there are 5 million self-employed workers in the UK, this means that 1.2 million people have started working for themselves since March 2008, during which period the UK economy contracted for six consecutive quarters.

The research, which was carried out among more than 2,000 adults, found that 12%, or 600,000, self-employed workers have been their own boss for less than a year, with a further 600,000 having been self-employed for between 12 months and two years.

However, only 6% of self-employed workers became self-employed in the 12 months leading up to March 2008 – a period before the UK economy had begun to contract.

The survey also found that more than two thirds – 68% of self-employed workers have worked for themselves for more than three years.

Charles Morley, head of sales and product development at Kensington, says: “This research supports the anecdotal evidence that the number of self-employed workers increases during a recession when businesses reduce the number of permanent staff they employ.

“I’m sure we all know somebody who has harboured ambitions of being their own boss and only taken the opportunity to do so when their employer has started to make cut backs. Many of these people are now enjoying very successful businesses of their own but, because of the way some lenders process applications, they would find it very difficult to secure a mortgage.

”Kensington looks at things differently. Our underwriters look at a customer’s circumstances, not an automated credit score, which means we can make lending decisions for self-employed customers based on information that many lenders cannot process.”



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  • michael white CEO email mortgages 5th May 2010 at 1:42 pm

    Looks like we got there in the end…. this is all about pricing for risk as opposed to the assumption that all recently self-employed et al are a risk just not worth taking!

    I also think it should be the lender’s decision how it wants to price its product and the criteria it expects to be fulfilled by the applicant to achieve the loan. This comes with the caveat of course that lenders must lend responsibly, which was not the case for many during the pre-credit crunch years.

    If we are able to get some more liquidity and commonsense into the mortgage market then it is imperative that the lenders feel able to offer these types of borrowers mortgage products. We are not talking about the heavy adverse/serial non-payer here but those who have been marginalised by recent events through no fault of their own.

    ………………Paul’s suggestion of the 60% product is a good example in point.

    There is certainly a sense of short-sightedness from the regulator in this regard; indeed, one can clearly see a similar process at work in its actions to kill off self-cert/fast-track – depending on whether it’s clear about what each one is? – and non-conforming at the same time.

    A combination of intrusively applied ‘risk free’ theory from the FSA matched by ‘computer says no’ underwriting is so very far from ideal it may be better described as an tragedy, particularly for vast swathes of borrowers or potential borrowers who are going to find themselves at the margins of the market over the next couple of years.

  • Paul 5th May 2010 at 12:59 pm

    An employed position can go sour just as a self employed new start can. The recession has led to new businesses which may or may not last for years. How many thousands of long established businesses went as a resul of the recession? Of course a lender would prefer a 3 year history which is why a new start up would be judged as such, with LTV and rate priced accordingly. A marketplace exists for newly employed. For instance a lender could say 60% max @ 6% until next years accounts are submitted, after which time they could choose to vary the rate and or borrowing. If people are out of the mortgage market for a set period the effect on the market as a whole can only be detrimental

  • Dave 5th May 2010 at 12:25 pm

    Paul Silcox | 5 May 2010 11:39 am

    You have hit the nail in the head with this one. Self employed small businessess go bust in the first few years. This is the reason it is harder for lenders to approve application, and put policy in place to see that they have at least 2 full years accounts. Lenders would be looking to see intent to pay would be ok, but at the same time ensuring the client has had the stability of the last two years to support the mortgage going forward.

  • Paul 5th May 2010 at 11:55 am

    Paul, name now on.
    1) Hard cash has been taken away from people in the recession with their jobs. The point of the post was to show newly self employed as a result of the downturn
    2) Agreed, but Woolworths for example went bust after god knows how long. Their staff would have been seen as a good risk prior to recession, despite the obvious that the model was flawed.
    3) Agreed, but what is a ‘normal’ market. We cannot pull the rug credit wise as this hasd become the assumed norm and therefore the way businesses are set up to operate. The weak pound has ironically helped businesses by enabling us to export with savings to the buyer whilst a £ is still a £ to us.
    4) Money makes the rules, agreed. When money was freely available it went round and round fuelling purchases of cars, holidays, conservatories, clothes, jewellery, and anything else people fancied. Most of all it kept people in jobs and feel good factor. A bubble which was always going to burst maybe, but as you say, one which will return.
    5) As for lending my own money. I wish I could in the current market. Light adverse clients are almost out in the cold. MBS are pricing for risk. Max 50% with 7.5% plus rates. As long as risk is priced for then I do not see why lenders will not lend.

  • Paul Silcox 5th May 2010 at 11:39 am

    Anonymous@10.33am (easier if you could just put your name). Glad your sarcasm indicator is intact
    1) Willingness and determination do not repay mortgages, only hard cash does (which may or may not be the product of willingness and determination)
    2) Majority of small businesses go bust in the first few years. If you get past these you may be successful, but lenders don’t know without a track record
    3) Currently, lots of small businesses that have been in “business” for years are going bust, not because of the naughty bankers not lending, but because they were businesses which never would have stood a chance in a normal market evnirnoment (last decade of “growth” is a credit-fuelled anomaly of which we will return back to normal ov ethe next 5 years)
    4) Those with the money make the rules. I am sure that banks are delighted to lend to good risks, unknown risks, less so. Always has been the case and always will be the case.
    5) Maybe you shold try lending your own money to the CC category on zoopla?

    Mel, is the downside of greater scrutiny on mortgage applications not a downside that people consider when they take the decision to become self-employed? I am sure there are plenty of self-employed out there that have 3 years of accounts etc and lenders are more than happy ot provide mortgages too. You do have to ask yourself why lenders are not “strong enough to offer mortgages in this field”

  • Mel Samuels 5th May 2010 at 10:52 am

    I do not concur with your comments Paul it is this type of assumption and narrow mindedness which has crippled the mortgage market for the self-employed. Besides I don’t think there are many people who can truly state they are secure in their employed job yet decisions aren’t made on that basis. Any lending has risks but there are many millions of self-employed people who pose little or no risk when it comes to paying back money, hence once one lender is strong enough to offer mortgages in this field they will clean up.

  • Paul 5th May 2010 at 10:33 am

    Touch of sarcasm here Paul? Nobody is suggesting lending to people who can’t repay, but how exactly do you define somebody who can? Long term employed, steady progression through the company, modest outgoings compared to income, what a low risk lend. Recession comes along, sorry Mr Steady, you are redundant. Now what does he do, recession means no jobs. If he were to get up off his rear and become self employed surely that shows willing and determination. From a recession comes opportunity, and this needs to be recognised. Why make somebody wait for 3 years to prove income? If they were re employed after a time out of work there is no 3 year minumum proveable employed income period. Possibly these types of deals will make brokers necessary due to the nature of them, not just a simple on line application.

  • Paul Silcox 5th May 2010 at 10:25 am

    Yeah lenders, stick your necks out give these people money that they may or may not be able to repay. The gov has your back so you’ve nothing to lose and fat margins to gain. Taxpayers will make you whole. Oh yeah, and make these mortgages available through brokers, pretty please….

  • Paul Silcox 5th May 2010 at 10:25 am

    Yeah lenders, stick your necks out give these people money that they may or may not be able to repay. The gov has your back so you’ve nothing to lose and fat margins to gain. Taxpayers will make you whole. Oh yeah, and make these mortgages available through brokers, pretty please….

  • Paul 5th May 2010 at 10:09 am

    Once again a massive amount of the working population who are unable to get access to a decent mortgage. Ironically as they are doing the very thing which became almost essential in order to continue to pay the bills. Come on lenders, never mind the research, stick your necks out and start lending to these people, however it needs to be done.