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Thinking Cleary: The changing face of UK employment and housing

10 August 2016

The ONS has recently published employment statistics under the title UK Labour Market: July 2016 and the thing that jumps off the page is the rising number of self-employed people and the growth rate in self-employed roles. There was 31.7m people employed as at the end of May 2016 some 624,000 more than a year earlier and the overall employment rate is at its highest level since records began in 1971 at 74.4%. Compared to a year earlier the number of employees increased by 319,000 to 26.71m representing 84.2% of all people in work; the number of self-employed people increased by 300,000 to 4.79m representing 15.1% of all people in work. The remaining 0.7% were people on government supported training schemes and unpaid family related jobs.

You can see from the stats that the growth in self-employed jobs is increasing at a much faster pace than that of employed roles but it continues to be the case that self-employed people find it much harder to secure a mortgage than employees. Most mortgage lenders require more proof of employment from self-employed people than they do from employees with the most common difference being a 2-3 year history compared to 12 months for employees. Obviously, there is additional risk for the lender in taking on a self-employed borrower but I think the differential in the underwriting and documentation required is disproportionate.

A few lenders like Precise Mortgages specialise in catering for the self-employed and have the risk management processes and skilled underwriters in place to ensure a good outcome for both borrower and lender. The slightly odd situation is that many lenders want 3 years audited accounts from a self-employed person (which in practice means they have been trading for nearly 5 years) but if an employee of that same firm applied they would only need their last P60 and three payslips!

It isn’t just employment statuses that are experiencing significant changes housing tenure is also in the headlines; statistics out recently show that home ownership is at its lowest level for 30 years and that the housing crisis is moving north with Manchester seeing the biggest declines of any major UK city. This isn’t new news, the Private Rented Sector (PRS) has been increasing for 25 years and the success of the buy to let finance has been instrumental in this growth.

The PRS is playing an ever increasing role in Society and whilst it is undeniable that many people simply cannot afford to buy their own home there is also a sizable number of people that choose to rent. Once considered a tenure of last resort, dominated by students and younger generations, we are now seeing a more diverse tenant population. The sector does continue to be popular with those in higher education and young professionals, but it is also now a sector with more families and older generations too. Unfortunately our politicians continue to use the housing market to score political points and to win votes and the continued assault on the buy to let market and the demonisation of landlords needs to stop before serious and permanent damage is done. Buy to let gross lending in Q2 post the SDLT deadline is significantly down, most notably driven by purchase transactions which have declined by c50%.

I hope that politicians and policy makers will pause for breath before making any more fundamental changes to this increasingly important market allowing the market to assess the impact of tax changes, tighter underwriting standards and of course the uncertainty caused by the EU Referendum.

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