December 6th, 2017
Two trends have moved in precisely opposite directions since 2008 – while self-employment has moved up every year, the percentage of Britons owning a home has declined. However, the headlines relating to housing have never connected these two trends. In fact, many of the headlines the day after Phillip Hammond’s budget update focused on the elimination of stamp duty for first time buyers on purchases up £300,000. All else being equal, this would reduce the cost of buying a home for a first-time buyer by up-to £5,000. The cynic might say that prices will simply rise by the amount of the stamp duty reduction.
There were additional measures announced to help encourage more houses to be built – although previous measures in this area have not really moved the needle. The Economist noted recently that the latest measures come on top of some 200 other measures announced since 2010 to address the malfunctioning housing market. Yet, in spite of all this focus, one worrying trend has continued unabated since 2008 – the percentage of Briton’s owning their own home has dropped from 73.3% to 63.5% — a drop of 13% in less than 10 years. What is going on?
The narrative is that too few houses are being built whilst the population continues to grow. This squeeze has increased prices out of reach for all but the most affluent in many parts of the country. Other villains in this story are foreign buyers viewing the UK as a safe haven for their cash, buy to let landlords parlaying the equity they have built up into more housing purchases shutting out owner occupiers, NIMBYism preventing the right number of houses being built, and finally the aforementioned stamp duty increases keeping people where they are instead of paying 10% or more of their purchase price to the government.
But is that the whole story? No. There is another trend that no one talks about impacting the housing market but at CMME we see every day – the rise of self-employment. Since 2008 the number of self-employed people in the UK has grown 21% and is now standing at 4.6 million. And while this is the number self-employed individuals, the number of households where some of the income is from self-employment is obviously much higher. Why might this be impacting the housing market? Simply put, most lenders make it much more difficult for the self-employed (including contractors, freelancers, consultants, interim managers, those in the gig economy, and the traditional ‘business owner’) to access mortgage finance. Effectively there is a fast-growing segment of the UK population – a segment on one hand lionised for driving economic growth and innovation – being discriminated against when trying to arrange the most important financial transaction of their lives, their mortgage.
How does this discrimination manifest itself? For the most part via mis-information and indifference. The reality is that the narrative that it is difficult or impossible to get a mortgage if you are self-employed means many self-employed simply don’t try. The indifference comes when, for example, an NHS contractor making £40 k a year walks into his local bank branch and is told that he will have to be contracting more than three years before the bank will even consider him for a mortgage. The truth is it is more time consuming and resource intensive for banks to evaluate the self-employed for a mortgage because their sometimes ‘messy income’ does not work with pre-constructed data entry forms and algorithms that all banks use. So, they create ‘rules’ which effectively shut the self-employed out of the market or count a much smaller part of their income toward mortgage affordability.
What can be done? Well the good news that there are companies like CMME which specialise in helping contractors, freelancers, and the self-employed get the mortgage the deserve. Many of the banks who, when a self-employed person walks into their branches shrug their shoulders, actually have specialist underwriting teams that work directly with brokers like CMME. Companies like CMME know exactly how to package the mortgage application of a self-employed individual to accurately reflect their affordability and risk so that banks are willing to lend. Ultimately the rates and terms these customers achieve are on a par with what is offered on the high street. Therefore, there are some good options available but these need to become more widely known. Most clients we see at CMME have come to us after getting brushed off by a bank or a non-specialist broker. The self-employed need to know before they give up on the home of their dreams that there are options available.
But beyond what companies like CMME can do, what can the big players (banks and governments) do to help the self-employed access mortgage finance? Well the government has focused a lot on small business lending as an engine of growth for the economy – maybe they should task lenders to provide evidence of personal mortgage finance to the self-employed as another assessment tool for banks. And the banks themselves? In their drive to digitize and streamline their processes, they are making it harder and harder for those who don’t fit in a neat box — ideally full time employed with a consistent income – to access critical financial services. Instead of ‘algorithm says no’ perhaps the banks need to show evidence that they have referred these clients to a provider who will take the time to truly understand the customer’s situation and make every effort to get the right mortgage deal for them.
By Tom Allder, Chief Marketing Officer CMME
CMME was founded by Sat Singh in 2004. In 2015 the company acquired Contractor Financials, the specialist contractor financial advisers which was formed in 2001, allowing the company to create a market leading proposition and build a best of breed business to serve the interests of the contractor and freelancing community. The company employs 150+ people who work in the company’s Alton and Whiteley offices in Hampshire. The company offers mortgage advice and protection advice whilst its sister company Contractor Wealth offers pensions and investment services. The company was awarded the FeeFo Gold Award in 2017 for excellent customer service