Broker Perspective: Complex income is the new normal

Borrowers with multiple income streams, side businesses and non-traditional employment arrangements were becoming increasingly common, said brokers.

Dan Gracie, co-founder of Pavilion Finance said complex income was becoming a far more common feature of the mortgage market.

“Complex income is becoming the new norm. Normal isn’t one job, nine to five, stay in that job for 25 years anymore,” he said.

The broker noted that while the term “specialist lending” was once used to describe almost any case that fell outside mainstream criteria, the market had evolved considerably.

“There’s a middle phrase ‘complex lending’…it’s a thing people are saying and talking about,” said Gracie as many borrowers now sit somewhere between standard and specialist.

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Rethinking self-employed assessments

Gracie said a borrower starting a business today could face a wait for over a year before some lenders would consider their income.

“If you start a new business today, you won’t be able to borrow for probably 18 months,” he said.

“But your employees could get a mortgage as soon as they’ve started the job, even though their job is less secure than the new business owner.

“We are treating self-employed people’s income historically and employed people’s income currently,” he said.

Meanwhile, Chris Sykes, co-founder of MSP Financial Solutions said accountants viewed tax calculations as an incomplete picture of a borrowers finances. “A lot of accountants have some quite strong views that the tax calculations that we use for self-employed people really don’t tell enough of the story for self-employed borrowers,” he said.

Side hustles and multiple income streams on the rise

The brokers also said they noticed borrowers were increasingly supplementing their main earnings with second jobs and self-employed side businesses.

Side hustles were shown to become increasingly common for younger borrowers looking to start on the property ladder, as a way to supplement deposit savings.

Gracie said lenders generally required evidence that secondary income is sustainable before incorporating it into affordability assessments.

“Most lenders treat second income quite differently. They want to see longevity in it. They want to understand it and know it’s sustainable,” he said.

In some cases, lenders were examining employment contracts to ensure additional roles did not conflict with a borrower’s primary employment.

Sykes added that self-employed secondary income often required a track record of two years before many lenders will consider it.

Combinations of complex factors increase

Rather than seeing a rise in any single complexity factor, the brokers said the biggest change had been the growing number of factors affecting individual borrowers simultaneously.

“I don’t think I’ve seen any individual complex factors increase. What I’ve seen is the combinations of complex factors increase,” said Gracie.

“I feel like you used to deal with clients who had one or two complex issues. Now everyone has five or six complex issues in combination.”