Review: Specialist lending
Work – but not necessarily as we know it by
Jon Hall, CEO, Saffron Building Society
Most lenders tend to view the world of work in very simple, black and white terms: appli- cants are either classed as being employed or self-employed. However, as most brokers
know, life is never quite that simple and sitting neatly be- tween these two categories is another group, oſten referred to as contractors, which in- cludes interims, consultants and temps. Unfortunately, many lenders don’t really un- derstand them in as much de- tail as they should do and, as a result, contractors - and their brokers - oſten find it more difficult than they may have expected to get a mortgage. So how significant is this
group? According to the
Interim
Management Association, the UK has the most established interim management sector in the world and it’s a sector that has grown by 93% since the pre-recessionary days of 2006. In total, there are estimated to be approximately 15,000 top- flight interims (according to MORI research undertaken on behalf of IMA) and in addi- tion there are a further 80,000 management consultants (according to UK Consult-
ing Industry Statistics Report 2012). Te interim sector is estimated to be worth £1.5bn a year and management con- sultancy £8.5bn. Both sectors are therefore significant by any standards. Also, according to govern-
ment statistics, there are 1.65 million temporary employ- ees in the UK. ‘Temps’ is, of course, a fairly wide ranging catch-all that covers a broad range from those who choose temporary work to those who are involuntary temps and their skills range can vary dra- matically. Interims include high level,
highly experienced senior managers who step-in to help companies if a key role
sud-
denly becomes vacant because of illness, maternity leave or a key executive being head- hunted by a competitor. Inter- ims usually work on a full time basis and typically demand rates of between £1,000 and £2,000 a day.
New perspectives Interims have become in- creasingly popular, not only because they can help plug a hole but because they also bring fresh thinking and a new perspective to a company. And, despite their apparently heſty day rates, they can also be very cost-effective because a company doesn’t have to pay bonuses, NI contributions, pensions, health insurance or
provide other fringe benefits. Consultants are a different
kettle of fish. Tey can either be employees of a consultancy firm or they can be self-em- ployed and work on a contract basis. Self-employed consultants
can either work on a day rate or fixed fee and therefore pres- ent a greater challenge. Finally, there is a crossover
group who sit between con- sultants and temps. Tey oſten work on shorter-term projects and have a lower level of re- muneration and include roles such as IT contractors. Te key point is that all of
these groups are growing and nowhere more so than in the financial services sector. Look at any financial institution and you’ll find interims, consul- tants, contractors and temps – in large numbers!
Toe curling So why do lenders
tend to
curl-up their toes when they’re presented with a mortgage application from a contrac- tor? Te answer is because, unfortunately, they struggle to understand the way in which contractors are remunerated. Contractors don’t have a
defined salary. Teir day rate may differ from client to client and their contracts may run over varying periods of time and include void periods be- tween contracts. It’s easy to see why underwriters can be leſt
scratching their heads when it comes to calculating maxi- mum loan amounts! Te good news is that there
are some lenders (and I sus- pect it will come as no surprise to learn that Saffron Building Society is amongst them!) who take a far more sympathetic view of contractors. Te way they overcome the income multiple issue is usually by basing their income calcula- tions on a multiple of the con- tractors day rate. For example, at the Saffron we’ll base the ap- plicant’s income on their day rate x 5 x 48. We’ll also look for a minimum contract history of six months for applications up to 80% LTV, rising to two years for loans up to 90% LTV and borrowers must be able to demonstrate they have six months leſt on their contract. Te obvious challenge for
brokers, therefore, is to under- stand who the lenders are and the differences between their criteria. Brokers who receive only
the occasional application from contractors may opt to hand-off the application to a specialist broker who is far closer to the needs of this market. However, that’s not the only option. Dealing with contractors
shouldn’t be be-
yond the abilities of any mort- gage broker and, as you can see from the figures in this article, it’s a specialist market which is on a growth trajectory.
20 MORTGAGE INTRODUCER SEPTEMBER 2013
www.mortgageintroducer.com
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