“Today there are more contract employees than ever before and that’s just going to continue to grow as corporations try to limit their liability by having employee pension plans, benefits (and) payout packages on termination,” Steve Garganis of Mortgage Intelligence
MortgageNOW.ca told MortgageBrokerNews.ca “The reality is a great many of these (contracts) are renewed or ongoing and this is going to be a continuing trend; it’s not going to go away.”
Kensington, a specialist lender in the United Kingdom, is set to release a range of products on January 13 for contract workers who have been employed for more than 12 months at the same employer. The borrower’s income is calculated by multiplying their weekly rate by 46 and rates start at 3.44 per cent.
“We have the underwriting expertise to make sensible lending decisions for people who work on a contract basis and will be charging contractors the same rate of interest as permanent staff,” Alex Hammond, head of marketing and communications for Kingston, said to the UK mortgage publication, Mortgage Strategy.
That level of confidence is missing among Canadian lenders, who seem to be cutting back on similar products.
“There is definitely a market for it and there is definitely a need for it; it sounds like our business-for-self programs, (which are) not what they once were, they’re almost non-existent, quite frankly,” Garganis said. “They’re not risky at all; in fact there is no evidence to support the claim that they have higher arrears or pose a higher risk.”
While the Canadian mortgage market may not have an appetite for such a product at the moment, Garganis is optimistic about one being established in the future.
“Things happen in cycles and we’re in a cycle now of tightening; lots of pressure from the government, prices are at all-time highs so they want to slow the market using any means they see fit,” Garganis said. “Unfortunately, the collateral damage is going to be innocent victims: People who can afford to pay their (mortgage) and are being shut out, they’re not able to get a mortgage.”
That may not change soon.
“We’re going to have to wait a few years for things to calm down, less concern about the potential housing bubble and once that goes away it will go back to the way things were before,” said Garganis. “I don’t know how long it’s going to take, I’m pondering that myself; two years, four, I don’t know.”
A lender in the UK has established a mortgage product specifically tailored to contract employees, which has Canadian brokers clamouring for something similar here.