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You would have to have been living under a pretty sizeable rock for the past few years to miss the exodus of workers that have waved goodbye to their employee benefits and set up shop on their own. Figures from the Office for National Statistics show that the number of self-employed workers in the UK has risen to 4.61million, which is nearly as many who work in the public sector. This figure includes sole trades, freelancers, contractors and consultants.


As the number of those willing to ditch job security, sick pay and the promise of a steady wage has risen, a chasm has grown between this new army of workers and the financial products available to support them. The roll that contractors are playing in the economy is arguably more important than ever before, but their progress on a personal and professional level is being hindered by the lack of appropriate lending options available.

The dearth of financial products for the self-employed

The growing number of independent professionals can be found in a wide range of industries, from engineering and oil & gas, to project management, IT and many other knowledge-based roles. However, despite the clear diversity of these workers, they all share one experience in common: their difficulty in finding affordable finance.

Despite the clear shift in the way people are working, it is increasingly apparent that the mainstream lenders are yet to catch up. The non-standard earnings and lack of a traditional employee benefits package is not something the banks and building societies are used to. In many cases, the self-employed are considered to be high-risk simply because the way they earn does not fit the lenders’ dated concept of employment.

Given the fact that the self-employed now make up some 15 percent of the total labour market, you’d think the mainstream lenders would want a slice of that growing market. The amount of online search for contractor-based terms have risen steadily over the last five years, yet still the mainstream have not caught on. So what products can the high street lenders introduce to support this burgeoning group?

  • Contractor mortgages

Currently the market for so-called ‘contractor mortgages’ is dominated by specialist lenders predominantly found online. These lenders are wiling to judge affordability on the gross annualised contract rate rather than traditional employee income. Thanks to the generous rates many contractors receive, this can lead to increased borrowing power.

These lenders also understand that providing three years of accounts is not always feasible for a good proportion of the self-employed. Instead, many are willing to do business on the basis of one year of accounts, and even on the strength of a current contract. This is certainly an area the mainstream lenders need to educate themselves in, and introduce solutions that meet these specific needs.

  • Pensions

The self-employed are not covered by automatic enrolment, which means many are not saving properly for their retirement. A recent survey by the Federations of Small Businesses found less than a third were saving a private pension, while 15 percent were not saving anything at all.

The fact that the income levels of the self-employed tend to fluctuate makes it difficult to commit to saving every month for their future. They are not compelled to make contributions themselves, and neither do they benefit from employer’s contributions.

In their early years of trading, quite understandably many contractors and the self-employed focus on growing their business and maintaining a healthy level of cash-flow, rather than putting money aside for their pension. The reduction in the annual allowance means the self-employed could struggle to make up this shortfall in their later years when their businesses are more stable.

For now it is clear there is still a long way to go to make sure the financial products are in place to support our growing army of self-employed workers. Until they are, the impact will not only be felt by the UK’s contractors, but also by the wider economy.

About the Author:

Carl is a seasoned commentator on financial matters and one of the minds behind Just Mortgage Brokers. He has worked in the mortgage industry for over 20 years, first working for a high street lender, before departing to setup and run his own branch of mortgage brokers 15 years ago.