06 Jun How Australia’s growing gig economy affects self-employed home loans
Australia’s gig economy has been on the rise for a number of years, and new data by the Australian Bureau of Statistics (ABS) reveals that the number of workers considered to be part of this economy is still growing. From Deliveroo to Uber and Upwork, people are increasingly turning to jobs that offer a better work-life balance.
But what does this mean for gig economy workers seeking a home loan? With more Australians becoming self-employed, demand from these borrowers is set to increase, and lenders will need to adapt to meet their needs.
The rise of the gig economy
Gig economy work is growing around the world, not just in Australia. With the spread of mobile internet connectivity and platform websites such as 99designs, Airtasker, and Freelancer, people can now work from anywhere they like, whether that’s at home or from their local café.
It’s an attractive option for many people who are seeking a better work-life balance, yet doing short spells of contract work or completing work for a range of employers can make things more challenging when it comes to securing a home loan.
The difficulty of securing a home loan
Following the global financial crisis, self-employed borrowers faced even more significant challenges securing a mortgage. When you’re your own boss, income isn’t always steady, and without a history of up to three years’ worth of accounts or payslips, it can be far more difficult to obtain verification.
Banks became far less willing to lend to those they regarded as being riskier than your more traditional borrower with a standard income. For a potential borrower with enough savings and income to pay their deposit and keep up with repayments, being refused merely for having a non-standard income can be incredibly frustrating.
While self-employment has been on the rise for some time, securing a home loan is still proving difficult for many Australians. In fact, a recent survey revealed that one in five have been turned down for a loan, and of these, 26% were declined because they were self-employed or working part-time.
What is perhaps more worrying, is that more than half of those who were declined for a loan at a bank were not aware that other options are available. Non-bank lenders can help sole traders when it comes to securing a mortgage. By assessing applications on a case-by-case basis and having a more flexible approach to the type of documentation they can use to conduct their lending assessments, they may be able to help where other lenders cannot.
This flexibility isn’t just about giving borrowers other options; using documentation such as accountant letters, bank statements, and business activity statements can actually provide lenders with a more current picture than some traditional forms of documentation might.
While some may have concerns that these types of lenders will charge much higher interest rates, what you’ll find is that they actually offer very competitive rates. For example, the lowest interest rate from Commonwealth bank is 3.79%, although rates do vary depending on the loan to valuation ratio (LVR).
Time for a change
What the larger financial institutions have done is essentially create a void by only focusing on one type of customer. Old style policies must be adapted to suit newer generations and those working in the gig economy.
Banks should follow the lead of non-bank lenders, who offer a more flexible approach and look at the whole picture of an individual’s circumstance to gain a better understanding of potential borrowers. There is no need to loosen lending criteria; it’s about staying current and helping this underserviced market find a solution that meets their needs.