How first time buyers are using side hustles to build deposits and what this additional income could mean for their mortgage

By Ipswich Building Society

The last year has been tough, especially for first time buyers. Not only we are all too familiar with the story of rising houses prices and intense competition for available properties, but also the economic impact of the pandemic has hit would-be first time buyers hard – under 25s saw the biggest rise in unemployment during lockdown, online graduate job vacancies fell by 60.3% and there’s even a prediction young people’s pay could be lower for three years.

What’s the answer? Whilst the well-publicised Bank of Mum and Dad is often lauded as the saviour of first time buyers not everyone is fortunate enough to have this safety net. And even when the deposit has been gifted, lenders usually like to see that the borrower is putting up some of the funds themselves – it shows us commitment, and having a financial stake in the property often means they’ll be more likely to continue meeting their repayments.

We recently carried out research* which told us as many as two thirds (64%) of resourceful first time buyers are turning to a ‘side hustle’, essentially a second source of income, to help them save for a deposit (rising to 85% in London). Crucially, the earnings from this extra work account for two fifths (39%) of a deposit on average – making a significant contribution to their property purchase.

What a side hustle means for your client’s mortgage deposit and their application

We all know the bigger the deposit, the lower the interest rates on offer, so it’s not surprising that having a healthy sum to put down is desirable. We won’t need to know about the side hustle for the deposit but, when it comes to including any additional income on the mortgage application to assist with affordability, we’ll need to take a closer look.

Generally, you will need to provide evidence from your clients that any additional income is reliable and ongoing. At the Ipswich here’s a quick look at our criteria:

• We need an applicant to be employed in a 2^nd job for at least 12 months, demonstrating the income is sustainable. We can then use 50% of this income.
• If the second job is on a self-employed basis, we will need two years figures, and will average, unless the most recent year is lower when we will use that, and then take 50%.

What else your client should know

Additional income often equates to additional tax. Anyone with a side hustle should check with HMRC to understand what does and does not need to be declared for tax purposes. Your client should also check their main employment contract to see how their employer views second jobs or additional incomes.

Ready to talk?

If you’ve got a first time buyer with a side hustle, or a case to discuss, just get in touch. We’d love to hear from you.

E: bdt@ibs.co.uk

T: 0330 123 1073

W: www.ipswich-intermediaries.co.uk

Submit cases online by registering with our panel.

*Independent research undertaken between 6-9 July 2021 amongst 476 first time buyers.