In the UK, it's more common than ever for workers to be employed with a so-called zero-hours contract. As of November of 2017, there were 1.8 million Britons engaged in such arrangements. For better or worse, they form the backbone of the British gig economy. As anyone that has worked with a zero-hours contract can tell you, however, it can be difficult to be a fully active participant in the thriving overall economy without the certainty provided by guaranteed hours.
One thing that is especially challenging for those participating in the gig economy is finding a way to secure housing. The housing market across the UK has been especially challenging for homebuyers in recent years, and even more so for workers without guaranteed-hours employment. As the financial crisis of 2008 caused lenders to raise their standards when issuing mortgages, owning a home has become something of a long shot for too many hard-working people. A long shot, but not impossible, if you approach it the right way. Here's what you need to know.
If you're self-employed or have an otherwise complex work situation, it is still possible to secure a mortgage. In fact, the self-employed can usually get the same exact mortgage offers that their traditionally employed counterparts do, as long as they can convince a lender that they're not too much of a risk. That's where careful and thorough recordkeeping becomes critical. To secure a mortgage, you'll need to provide documentation of your income to the lender.
You'll want to have your accounts prepared by a certified accountant, and the longer the record you can produce, the better. It is possible to secure a mortgage with only a year of documentation, but most lenders will want at least three years' worth. Lenders will also want to see your tax records from HMRC, as they consider it a more reliable measure of income. Unfortunately, that also means you won't be able to be as aggressive in minimizing your tax liability.
Many people try to avoid engaging the services of a mortgage broker because they worry about the fees they will incur when doing so. For self-employed individuals, those fees can be well worth it. A broker will know which lenders have a track record of lending to the self-employed, and under what circumstances. That means that they can help you compare mortgages that are realistic options, as opposed to wasting time with offers that you're unlikely to get approved for.
The other thing to consider is that the mortgage brokering business has changed considerably in recent years, with competition driving down fees across the industry. It is nowhere near as expensive to use a mortgage broker as it had been in the past. Today, many charge a small flat fee or a percentage of up to 1% of the mortgage amount. If you do the math, there's a good chance that the fee you'll pay is lower than the total hourly rate you'd have charged if you had done the legwork yourself.
When you're self-employed and seeking approval for a mortgage, it's important to remember that lenders aren't concerned with your earnings alone. They're also trying to gauge your personal reliability as well. The good news is that anyone involved in the gig economy should be used to selling themselves to potential customers, and those skills transfer well to the process of securing a mortgage.
To begin with, you must consider that the lender is going to examine your finances with more rigor than they would for others. They're going to be looking through your accounts for signs that you might be a bad risk. That means it's a good idea to make sure that you refrain from any questionable financial activity for at least a year before you apply for a mortgage. That means avoiding charges for things like online gambling, expensive luxury items, and alcohol purchases. Even if those things aren't indicative of your normal behavior, they will be used against you.
Once you've made sure that you've prepared the right documentation, hired the right broker, and kept your financial history squeaky clean, there's one more thing to consider. As obvious as it may sound, it's important to limit your mortgage to the lowest value possible. That means making sure the homes you're targeting are well within your comfortable price range.
The reason for this is twofold. First, the higher the loan-to-value ratio climbs, the lower your odds of approval sink. Second, as a member of the gig economy, lenders will hold you to a much stricter standard when determining your ability to pay. They'll assume a wider latitude of possible interest rate changes, and consider what might happen if the market value of the home declines. Either way, the less you need to borrow the better.