"Antiquated" checks failing underserved borrowers - head

He's leading a revolution for the self-employed

"Antiquated" checks failing underserved borrowers - head

It’s no secret that self-employed people have a tough time when it comes to obtaining credit and, indeed, a mortgage.

Proving that you can afford to pay your bills on a regular basis can be a far bigger challenge for self-employed people than for standard borrowers, and their cause is not helped by having to comply with traditional credit checks and worthiness assessment models that invariably fail to take into account complex credit histories.

But the self-employed are an underserved sector the mortgage industry can ill-afford to ignore. The gig economy has grown substantially in recent years, despite a blip during the height of the COVID pandemic.

According to government data, 15.3% of workers in the UK were self-employed in 2019, while figures released by Simpletax showed that 4.95 million people were registered as self-employed that year, rising to more than five million at the start of 2020.

Although the pandemic reduced that number to 4.56 million by August of that year, the same research by Simpletax said that one in five young people aged 16 to 21 expected to become self-employed, showing that there is a huge potential for this segment of the market.

Read more: "Paradigm shift needed to help first-time buyers"

A company determined to champion their cause is Tink, a European open banking platform which recently carried out research on the topic, revealing some startling facts about the self-employed.

It showed that over a quarter (28%) of the UK’s self-employed said they struggled to access financial services. Almost the same percentage (27%) said they felt they had been actively discriminated against, and a third (33%) claimed their employment status was an obstacle to securing a mortgage.

Jan van Vonno, Tink’s head of industry strategy, said it was proof that the current credit risk checks, based on “antiquated” paper-based models, should be replaced by more efficient, tech-driven platforms to enable faster and more accurate credit decisions. 

“Our mission is to enable a new world of finance, one that is data driven. The technology that we take to market, using open banking capabilities, allows us to rethink what affordability checks look like or what a credit worthiness assessment model does and how effective it is,” he told Mortgage Introducer.

Proving that self-employed people can pay regular bills on regular credit was key, he said.

“That’s the particular problem that currently keeps them from getting a mortgage with a financial institution. The second one is their ability, or inability, to show that they’ve been able to meet debt obligations in the past,” he added.

Read more: Rate of house price growth “surprising”

He revealed that Tink was currently working on launching a product to help assess cash flow and expenses, adding that the focus was on “eradicating financial anxiety and enabling financial wellbeing”.

The firm, which already collaborates with more than 3,400 banks and financial entities across Europe, including NatWest, appears to be on a firm financial footing.

In June 2021, Tink was acquired by Visa in a deal reputedly worth €1.8 billion. At the time, Charlotte Hogg, CEO of Visa Europe, said the acquisition would help the firm to fast-track innovation in open banking.

van Vonno, however, conceded that a totally seamless, paper-free experience was not yet possible, and that some level of manual underwriting was still needed.

“Today, this is still the case, so there’s still a heavy reliance on the credit reference agencies,” he said. “But complementing this with open banking capabilities will lead to more intuitive experiences for the self-employed, while creating more efficient and optimal journeys and application processes for the credit institution.”

Nonetheless, he insisted that tech-driven platforms were a crucial tool for lenders, adding that they would play an increasingly important role, more so as economic conditions become tougher for borrowers.

“It’s about anticipating one’s ability to afford credit in the future,” he said. “What if the cost-of-living crisis does even more damage to the ecosystem? What if interest rates grow even more? What are the implications for a lender under those circumstances? The technology that we take to market gives a much, much more detailed understanding of one’s cash flow or one’s risk elements in the present and potentially for the future.”