The gig's up!

The following article is written in association with Pepper Money.

As the cost-of-living bites, inflation remains high and mortgage rates challenge even the thriftiest of borrowers, the UK’s gig economy appears to be gaining momentum.

One in six adults are working at a so-called gig job at least once a week, according to the website StandOut CV – part of a large and growing section of the working population, who pursue short-term flexible work.

In the gig economy, workers are paid on the completion of tasks - known as gigs - instead of being paid for the time that they work. Benefits for these casual workers include the flexibility of being able to choose when and how they work, plus the ability to increase their earnings with good performance.

And that’s crucial for those who are trying to buy their own homes and are often holding down second jobs to boost their affordability, through multiple income streams.

Specialist lender Pepper Money has seen firsthand evidence of this changing work landscape – and prides itself on doing its best to provide finance solutions for those working in the gig economy.

“We've certainly noted an increase in applications where there is more than one income stream,” acknowledged its director of business development, Ryan Brailsford. “Affordability is key at the moment, because mortgage rates have risen and that is the biggest challenge now for those wanting to buy property.

“These are hard-working people who potentially may not be able to afford monthly payments, and obviously they're taking steps to address this by exploring secondary incomes. As such, they might not fit the criteria of mainstream lenders, whereas at Pepper Money we seek to be flexible in our terms, to try to help everyone as we can.”

He continued: “Pepper Money is a lender that's able to help those who are underserved by the mainstream lenders. We don't credit score and we don't use computers to make decisions, which allows us to individually underwrite widely varied cases and applications for customers.

“I've been with Pepper Money since we launched in the UK seven years ago. Previously, I spent six years at another specialist lender.  So, I'm very passionate about the specialist market and very interested in helping those who don't fit with the mainstream. I've spent my whole career with lenders who do things slightly differently.”

The UK gig economy workforce is estimated by Standout CV to number 7.25 million. Gig workers are thought to contribute £20bn to the UK economy - the same as the aerospace industry.

Almost half (48%) of gig workers in the UK also have a full-time job. Some 89.7% of UK gig workers surveyed say the cost-of-living crisis has influenced them to take up extra work. For most - 71.5% - gig work makes up less than half of their income, but its contribution to their affordability is undeniable.

“Sometimes it can be as straightforward as having two employed roles, and where a specialist lender like Pepper Money is very good is that we'll take into account 100% of that income,” Brailsford explained. “Working in hospitality seems to be a popular source of additional income, where people are doing an office job during the day, but possibly working at a pub, restaurant or hotel in the evening. Another frequent source of work appears to be as delivery drivers.

“We see applicants from a cross section of ages working in the gig economy, but it often tends to be young families, trying to meet the rising costs of bringing up their children, for example, people in their early thirties to mid-forties.”

He recalled: “I was reading a report a few months ago that said that 30% of people said that they would take an additional job if costs continued to rise. We're midway through the year and the costs have definitely risen, so I think the number working in the gig economy is going to continue to grow – we're seeing that trend.

Brailsford believes that what differentiates Pepper Money is the transparency of its product range, which can help gig workers.

“There are other specialist lenders, who operate in the same space, who have quite restrictive criteria around certain things,” he reflects. “What intermediaries like about Pepper is how transparent our product range is and how we don't limit the different elements of a case that there might be. You could overlay lots of different elements of criteria, and we're still able to help a customer.

“We don't have any additional rules around the time that an applicant needs to have been doing a second job, it's just three months, as we expect for primary income. We will also consider bonuses and commissions as part of an applicant’s income. Overtime is very common now, so we're able to average the last three months of that and take 100% of it into account. As a lender, our underwriters are able to ask the right questions and truly understand someone's situation.

He elaborated: “One of the other things that we see, from a gig economy point of view, are zero-hour contracts. Sometimes people have multiple zero-hour contracts, and they're juggling full time work. We're able to look at these - as long an applicant has a two-year history, we take the average and work out their income from there.”

Brailsford expressed concern though about the mental and physical toll that extra work could take on borrowers over time.

“The challenge is a maintaining a work-life balance. Our latest Specialist Lending Study identified 37% of the UK population stated their mental health is negatively impacted by their financial situation” he said. “It's very easy to say, ‘All my costs have gone up, I need to earn more.’ But, obviously, that can cause burnout. From an underwriting point of view, that's one of the things that we look at - is it sustainable long term? It does need to be.

“You can't do two physically demanding jobs, for example, one in the day, one at night, it's not sustainable. So, it’s a balance between trying to do something to address your finances and, in the process, possibly burning yourself out. We do want to make sure that the hours that an applicant is working per week are sustainable moving forward. That’s part of responsible lending – we can’t lend based on an income that isn't going to carry on.”

Brokers understand this balance, Brailsford said.

“Nobody wants to put a customer in a position where they can't maintain their work and therefore their repayments, so how they derive their income and whether they are able to keep both those jobs or, indeed, multiple jobs going is really important, to intermediaries,” he confirmed. “Our experienced team are really well placed to ask the right questions and build a picture of a customer and their working life.”

The relationship between Pepper Money and brokers is key, Brailsford stated.

“There's never been a more important time for borrowers to get a holistic view of their finances and to make sure that what they are doing now is the most secure thing for them in the coming years,” he commented.  “I always say to brokers, just make sure that your keywords are on your website and on your social media and make sure that it's obvious that you're able to help people who are struggling, whether it be because they're self-employed, or because they've got adverse credit. Just make sure that you shout about what you're able to do.”

The inflation rate may have slowed but given that costs remain high, Brailsford anticipated that some may continue to go that extra mile to pay their bills.

“We're starting to see the effects on people who are coming off those fixed rates from two years ago,” he concluded.

“If we get to such a time as costs start to come down a little, or at least inflation slows more than we've seen recently, then maybe that will give people an opportunity to reduce the hours they are working. But, for the moment, the gig economy is a means to an end, while people keep up with the increases in their outgoings.”