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Zero hours contracts should not mean zero mortgage options

08 March 2019

Alan Cleary - Managing Director of Precise Mortgages

Zero hours contracts are a point of contention for many people. One side (typically the employers) argue they’re flexible and provide employees with choices; the other, the workers themselves, claim they have reduced rights as a result.

There have been several high profile court cases on the subject, most notably brought by Deliveroo couriers and Uber drivers. Uber drivers won the legal right to be treated as employees, thereby qualifying for sick pay, maternity cover and holiday pay among other things. Uber meanwhile is appealing.

Politicians have also waded in. Labour’s shadow chancellor John McDonnell has been very vocal about his wish to ban zero hour contracts, laying out his proposals at last year’s party conference.

And last month the zero hour contracts debate reared its head again after the TUC claimed1 that those working on the contracts are typically paid a third less than other workers and they get all the worst shifts. The TUC polled 3,287 workers - 300 of them zero hour staff – and called on government to ban zero hour contracts, as well as take ‘further action to tackle exploitative and insecure work’.

Theresa May’s government meanwhile looks unlikely to act any time soon. Responding to the TUC in February2, the government said a ban would ‘impact more people than it would help’. A business department spokesman told the BBC: ‘They provide flexibility for both employers and individuals, such as carers, students, or retirees.’

In February, the Office for National Statistics (ONS)3 published estimates showing around 844,000 people were in employment on zero hours contracts in their main job in the UK in 2018 - some 57,000 fewer than for a year earlier. However, long-term there has been a significant rise in the number of people in this type of work. The ONS Labour Force Survey reported just 147,000 people in employment in October to December 2006 were on a zero hour contract. In the same period last year, that number was 844,000.

Much has been written about the growing need for mortgage finance for the self-employed and we at Precise Mortgages, along with various other building societies and specialist lenders, have worked closely with brokers to develop our criteria so that we can help more self-employed mortgage applicants.

There are several challenges when it comes to assessing affordability for the self-employed, but particularly for those on zero hours contracts. For example, the TUC research found that on average, zero hours workers work 25 hours a week, compared to the average employed worker, who works 36 hours a week. The TUC figures also show that one in seven zero hour workers (16 per cent) do not have work every week, while the ONS figures show that a third of zero hours workers have been with their current employer for less than 12 months.

However, just because these people choose to work in this way, doesn’t mean we can’t lend to them. We have developed criteria specifically aimed at supporting borrowers who choose to work on zero hour contracts, and recently extended our criteria to include second applicants.

Zero hour contracts are now permitted when the secondary applicant (i.e. not the main income earner) is employed on this basis. In order to be as flexible as possible, we only require payslips covering the last six months and the borrower’s latest P60. Eligible income is the lower of the average pay from the last three months or last six months.

Whether or not zero hours contracts should be banned is up to others, but while they exist, there is a responsibility among lenders not to unfairly exclude these workers from the chance to own a home with a mortgage.

Sources:
1 https://www.tuc.org.uk/news/zero-hour-workers-twice-likely-work-%E2%80%9Chealth-risk%E2%80%9D-night-shifts-%E2%80%93-tuc-analysis
2 https://www.bbc.co.uk/news/business-47193809
3 https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/february2019

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