For those of us lucky enough to have remained in steady employment during the past two years, the legacy of the pandemic in the world of work will likely centre around going remote, embracing technology, and saving on commuting costs. However, it is important to remember that this period has not been so positive for many.
While the furlough scheme went some way to support businesses in keeping staff on board, workloads faltered, and many businesses tightened their belts. As a result, some people found themselves out in the cold through no fault of their own.
Finding a balance
With memories of furlough and business support loans still fresh, and little certainty as to the ongoing ramifications of Covid-19, business leaders are understandably still cautious about upping their permanent headcounts, even as workloads recover.
From misfortune has emerged opportunity, however. While many have found their way back into long-term employment, others have embraced a new approach, namely working as contractors rather than long-term employees.
These contractors relinquish the security of a long-term contract, but they benefit from higher earning potential and flexibility. Meanwhile, in exchange for paying out more in the short-term, organisations have the freedom to reshape their workforce when needed, remaining agile in the face of an uncertain future.
The self-employed dilemma
This all sounds like a win-win, but complications often arise when this growing cadre of contractors – who for all intents and purposes might be doing the same job, in the same industry, for higher pay – come to apply for a mortgage.
More often than not, a lender will class these individuals as ‘self-employed’, which from a risk perspective is synonymous with uncertainty. Even when the individual can demonstrate a long-term relationship with a core business, without a traditional employment contract, a lender has to consider the danger of a sudden change to their circumstances.
However, if nothing else the past two years have taught us that no job is entirely safe, even one with a long-term contract. We are now reconsidering what makes for a stable investment, from realising the fragility of the high street, to questioning how another period of furlough – should the worst happen – might affect someone’s mortgage repayments.
We also know that people’s finances are only getting more complex, regardless of their employment status. Whether due to payment holidays, furlough, credit blips or multiple income streams, complicated is becoming the new normal.
There’s no more banking on a sure thing, and the only way to truly understand the nuances is to consider the borrower as an individual.
Serving the underserved
At Central Trust, we have a long track record of catering for the otherwise underserved, and of listening to an applicant’s story rather than judging them based on assumptions and algorithms alone.
To this end, we have made the move to treat contractors as employed, rather than self-employed, when it comes to assessing their mortgage applications – just one among a number of recent enhancements to our service.
On a practical level, this means a contractor’s income will be assessed using their day rate over a period of 48 weeks, to allow for holidays and sick leave. Applicants will be required to evidence 12 months of continuous contracting, with the existing contract renewed at least once with a minimum two months to spare.
As lenders, we have a dual duty of care. We must continue to lend responsibly, ensuring that mortgage borrowers are not placed in a position where they are unable to repay their loan, but at the same time we must strive to help those who have been left in the cold due purely to circumstance.
Our relationship with long-term employment is shifting every day, and contractors are proving integral in helping UK businesses bounce back once more. It is time to take the common sense approach and bring them into the fold.
Maeve Ward is director of commercial operations at Central Trust