The world of work in the UK has been transformed over the last 20 years, with a rapid rise in the number of people working for themselves, either freelancing or running their own businesses — although this figure has fallen from its peak since the pandemic.
Employment itself has also changed, with more people now part of the ‘gig’ economy, working on short-term or even zero-hours contracts.
Given the financial pressures of the pandemic and the cost-of-living crisis, it is not surprising that many workers are also supplementing their earnings with additional income streams, which increasingly come from a wide and diverse range of sources.
Many of these would not even have existed 20 years ago. Tech-savvy millennials and Gen Z-ers, for example, might be streaming on Twitch or YouTube rather than putting in an overtime shift.
And it isn’t just the younger generations looking to top up their pay packets with a lucrative side hustle.
Plenty of older workers are also monetising hobbies and skills, perhaps running their own craft or sales businesses on platforms like Etsy, Vinted, or eBay.
This extra income might help pay for day-to-day living costs, but it can create challenges when it comes to buying a home or moving up the property ladder.
Borrowing limits are typically based on earnings — but what counts as ‘earnings’ these days?
While many lenders focus on salaried income or require three years’ worth of tax returns for self-employment, we at Hinckley & Rugby Building Society take a more flexible approach and have adapted our systems and products to reflect the realities of work today.
In fact, it’s true to say that the building society sector as a whole is far better placed to support borrowers with complex income streams — despite the fact that the sector might be seen by some as more ‘traditional’ than some of its more recent competitors.
Most building societies have been around for decades and, in some cases, centuries — Hinckley & Rugby, for example, started 160 years ago — but this does not mean that we are conservative or stuck in our ways when it comes to modern lending criteria.
Building societies typically take a more individualised approach to underwriting, contrasting with the more automated processes adopted by many larger banks.
Rather than taking a ‘computer says no’ mentality to non-conventional income, we can look at each case on its own merits, assessing these various income streams.
This is certainly evident with our Hinckley & Rugby Income Flex product.
This takes into account both traditional and non-traditional earnings, which can include all of the following:
• Content creators: Platforms like YouTube and Twitch have turned hobbies into lucrative careers. Creators earn through ad revenue, sponsorships, and viewer donations.
• Freelancers and gig workers: From graphic designers to delivery drivers, freelancers contribute significantly to the economy but often lack the predictable income streams lenders prefer.
• Small business owners: Entrepreneurs running online stores on platforms like Etsy generate substantial revenues, albeit with seasonal fluctuations.
• Influencers: Social media personalities monetise their following through sponsored posts, affiliate marketing, and partnerships.
• Subscription and donation models: Platforms like Patreon allow creators to secure recurring income from dedicated supporters, while Amazon Wishlists offer direct financial support.
Accommodating non-standard income streams does present challenges, particularly around risk assessment.
Underwriters will evaluate both the sustainability and stability of these various income streams to ensure they can support the mortgage finance being applied for over the longer term. In many cases, earning streams will need to be evidenced, so our underwriters can assess factors such as seasonal fluctuations.
We want to help people onto the housing ladder, but it is also critically important that applicants can service their loans. Loading people up with unaffordable debt does not help anyone.
As demand for these types of products rises, lenders are increasingly offering more personalised lending with rates tailored to the individual risks presented.
As mutual organisations, building societies remain value-driven businesses, and recognising these earnings as valid is an important way to address financial inclusion and support aspiring homeowners, ensuring they are not unfairly excluded from what has been a challenging property market in recent years.
This will only become more important as technology continues to shape how we work and earn — with non-traditional income streams likely to become a permanent and more significant part of a dynamic economy.
As the economy continues to evolve, flexibility will be the cornerstone of the future mortgage landscape.
Far from being relics of the past, building societies are proving themselves to be at the forefront of embracing this change.
With a more personalised and holistic approach to underwriting, we are helping ensure homeownership remains within reach for everyone, regardless of how they earn their living.
Laura Sneddon, head of mortgage sales and distribution at Hinckley & Rugby Building Society
