Properties in the UK are now more unaffordable than ever, with figures released by the ONS showing that the average home sold in England cost the equivalent of 8.7 times the average annual disposable income – which is the worst affordability ratio in England since records began in 1999. For many Brits, getting onto the property ladder is now an unachievable dream, especially for the 1.03 million on zero-hour contracts. Since 2000 there has been a net increase of over 807,000 people on this type of employment contract according to Statista, widely used across the retail, restaurant, leisure and hotels sectors. With employers not being obliged to provide a minimum number of working hours, an employee’s monthly income can fluctuate greatly.
Due to the insecure nature of this employment, workers are encountering major obstacles not only when looking to gain a mortgage, but also when looking to rent. This is due to the fact that it is significantly harder to prove to landlords or mortgage lenders that you earn a steady income when working on a zero-hour contract. A move which could benefit those on zero-hour contracts is the Bank of England’s recent withdrawal of the mortgage affordability test in which lenders stress-tested whether applicants would still be able to afford the mortgage if their rate rose by three percentage points above the reversion rate. However, the central bank’s consultation response on withdrawing the test actually foresees little effect, and David Hannah, Group Chairman of Cornerstone Tax, predicts that mortgage lenders will introduce a different test as a substitute.
Zero-hour workers are also finding the rental market a troublesome environment as rents in the UK have risen on average by 8.3% over the last 12 months – pushing rents to 15.7% above pre-pandemic levels. July 2020 and July 2022 marked the largest erosion of tenants’ buying power since the launch of Hamptons lettings index in 2013. The recent rises in rental prices can be attributed to the continued supply and demand issues in the UK property market, and as landlords look to minimise risk as much as possible, Hannah believes that other renters may be favoured over those on zero-hour contracts.
David Hannah, Group Chairman at Cornerstone Tax discusses the barriers those on zero-hour contracts face in the property market:
“Over the past couple of years we have seen a substantial increase in UK house prices, which has made it more difficult than ever for buyers – especially those on zero-hour contracts – to purchase their first property.
“I think the withdrawal of the affordability test from the Bank of England will be positive news for borrowers who may have failed the test before, but I don’t think it will mean that banks will completely change the way they give out mortgages and I believe many lenders will introduce a replacement test.
“When it comes to the rental market, those on zero-hour contracts are unfortunately not in an advantageous position. The supply and demand levels are still significantly unbalanced, meaning landlords could have several potential renters to choose from. Due to the nature of the contract, zero-hour workers can’t guarantee a consistent wage meaning landlords will prefer those on full-time employment. It is not common practice for landlords to ban such applicants, but it is a risk which they tend to consider when vetting tenants.”
