Cast your mind back 10 years, when mortgages for contractors were rarer than unicorns. It felt fortunate to finally be able to count the number of providers – even if it was only on one hand.

Nowadays, it’s a rarity to find a lender who doesn’t have a contractor policy, or at least one in the pipeline.

However, despite considerable policy development for contractors, those who choose to work on a freelance basis – often falling into the gig economy – have been left behind.

These gig workers are essentially freelancers who derive their work through online platforms. Unlike a contractor, a gig worker may have more than one client at a time and work on a much more short-term basis. It’s also not uncommon for employed people to freelance online in their spare time as a way to earn extra money, particularly creatives and those in the tech sector.

There are considerable parallels between gig workers and contractors, both in terms of the reasons people choose to work freelance but also in terms of the stigma associated with them – a stigma which is causing the majority of lenders to exclude them from the market. Let’s talk about that.

Dispelling the myth

At this point when someone mentions the gig economy you’re probably inclined to think of Uber, who in fact only represent approximately 18% of the gig economy – much like Lloyds Banking Group who represent circa 16% of the mortgage market, but thankfully are not the only lender who spring to mind when thinking of mortgages! Therefore, it’s worth pointing out that over 37% of those working in gig roles operate through task per hour sites – such as People Per Hour, Fiverr and Amazon Flex – providing a broad range of professional and creative services.

What’s more, whilst the media often paint gig workers as zero-hour contractors being taken for a ride by tech firms, the reality is slightly different. A survey by the department for Business, Energy and Industrial Strategy in 2018 found that 58% of gig workers chose this line of work as it offers independence and flexibility.

Indeed, of the 4.4% of the population in the UK who work in gig, 56% are aged between 18 and 34 – the age group for whom the traditional employment route has become less appealing. Who wants to be a slave to the 9 to 5?

For the remaining 44% of the gig population, additional income or the flexibility to focus on other things are often cited as reasons for opting to work in this flexible way.

Is it really harder for gig workers to get mortgages?

Those working in the gig economy earn similar levels to the rest of the population and yet, 37% of gig workers live in rented accommodation verses 28% of the rest of the population. Why could this be? Well, the make-up of their income is understandably more complex.

Workers might have a mix of permanent, contract or other freelance/gig roles feeding into their income. Using multiple income streams with different levels of security is, candidly, a nightmare and often results in tax returns which themselves can prove problematic – 56% of gig workers cited flexibility to pick and choose when they work, and thus how much they earn, as one of the key benefits of freelancing. So it makes sense to expect a degree of choppiness in income.

In mortgage terms, freelancers and gig workers are at a considerable disadvantage to contractors, who now benefit from being able to utilise contract value rather than income declared in their tax returns and can thus apply for a mortgage without having to wait for two to three years to build a self-employment track record.

What can lenders actually do?

It seems silly to eliminate an entire cohort when there’s so much potential. True, developing gig-friendly mortgage criteria will present some challenges for lenders – particularly the struggle for a freelancer to prove that they will continue working and that work will be available – but that was once the story for contractors.

The more lenders learned about contractors, the better they understood how contractors were able to continue earning at the same level and therefore be suitable for a mortgage.

To accommodate gig economy workers, lenders must think more flexibly and really try to understand this part of the market as it’s clearly not going anywhere.

Those with an appetite to adapt their policy for the ever-evolving employment landscape could very well discover the next great niche.