Zero hour workers face significant hurdles in UK property market

Properties in the UK are now more unaffordable than ever, with figures released by the ONS showing the average house sold in England costs the equivalent of 8.7 times the average annual disposable income – which is the worst ratio ever. accessibility in England since records began in 1999 For many Britons, getting to the property ladder is now an unattainable dream, especially for the 1.03 million zero-hours contracts. Since 2000, there has been a net increase of more than 807,000 people on this type of employment contract according to Statista, widely used in the retail, restaurant, leisure and hospitality sectors. Since employers are not obliged to provide a minimum number of working hours, an employee’s monthly income can fluctuate greatly.

Due to the precarious nature of this job, workers face major obstacles not only when looking to secure a mortgage, but also when looking to rent. This is because it is much more difficult to prove to landlords or mortgage lenders that you are earning a stable income when working on a zero hour contract. One move that could benefit those on zero-hours contracts is the Bank of England’s recent withdrawal of the mortgage affordability test in which lenders tested whether applicants would still be able to pay the mortgage if their rate increased by three percentage points above the reversion. assess. However, the central bank’s consultation response to the withdrawal of the test actually predicts little effect, and David Hannah, chairman of the Cornerstone Tax group, predicts that mortgage lenders will introduce a different test instead.

Zero-hours workers are also finding the rental market a challenging environment, as UK rents have risen by an average of 8.3% over the past 12 months, pushing rents to 15.7% in above pre-pandemic levels. July 2020 and July 2022 marked the largest erosion of renters’ purchasing power since the launch of the Hamptons Rental Index in 2013. Recent rental price increases can be attributed to ongoing supply and rental issues. demand in the UK property market, and looking for landlords to minimize risk as much as possible, Hannah thinks other tenants may be favored over those on zero-hours contracts.

David Hannah, Group President at Cornerstone Tax, discusses the barriers faced by zero hour contract holders in the real estate market:

“Over the past two years we have seen a substantial rise in UK property prices which has made it more difficult than ever for buyers – particularly those on zero hour contracts – to buy of their first property.

“I think the withdrawal of the Bank of England affordability test will be good news for borrowers who may have failed the test before, but I don’t think it will mean banks will completely change the way they provide mortgages and I believe that many lenders will introduce a replacement test.

“When it comes to the rental market, those with zero hour contracts are unfortunately not in an advantageous position. Supply and demand levels are still very unbalanced, which means that landlords could have several potential tenants to choose from. Due to the nature of the contract, zero-hour workers cannot guarantee a constant salary, which means owners will prefer those working full-time. It’s not common practice for landlords to ban such applicants, but it’s a risk they tend to consider when vetting tenants.

Penny D. Jackson