Gig workers who do not have fixed income and job security make banks hesitant to approve them for housing loans.

Freelancers, contract employees and other casual hirelings, otherwise known as gig workers, are changing the way traditional banks work in Malaysia. Quite a portion of a new generation of workforce make up the unsung heroes who handle the problems people sweep under the metaphoric carpet but not many Malaysians have positive perceptions towards those in the gig economy.

A recent survey by the Malaysian Employers Federation found that 60% of employers believe that gig workers are not as productive as traditional employees. Another survey by the Malaysian Institute of Economic Research reveals that gig workers are more likely to be younger, less educated and from lower-income households than traditional employees.

If these perceptions resonate with you, then you probably belong in a bank. Banks are the bane of gig workers when it comes to applying for housing loans and the majority of them usually face loan rejections despite being able to earn sufficiently to pay off their loans.

Since banks first and foremost review income, gig workers who do not have fixed income and job security make banks hesitant to approve them for housing loans. Banks prioritise financial stability even if the amount earned via freelancing is higher than that of a full-time employee. A gig worker’s financial records originate from multiple channels, causing difficulties for banks to verify their income and expenses. These financial risks in the eyes of banks make getting a loan seemingly impossible for many gig workers.

How to boost chances?

A few methods gig economy workers can pursue to get approval for housing loans include working for a single company or client to achieve a regular income stream to show consistency and financial stability. Paying other bills and loans timely builds a strong credit history. Providing accurate income information to banks builds trust since banks thoroughly review applications for misinformation.

"Gig workers can also increase a bank's confidence in them by planning ahead to build up substantial savings in the form of a fixed deposit, for example. And if they have a long gig employment history, provide their annual income over three to five years to provide a semblance of stability. Their monthly income might fluctuate but the annual accumulated sum may be more than a traditional worker's salary. And of course, select a professional loan manager to better their chances," said a gig worker who succeeded in getting a housing loan.

Developers and banks work closely together, so if a gig worker can place higher down payments for their chosen property or perhaps browse lower-priced properties, banks would be more inclined to approve their housing loan applications. Gig workers can also consider applying for pre-approved housing loans to receive an estimated loan amount based on their income and capability.

Service housing loans through schemes

However, even if a gig worker does manage to secure a housing loan, maintaining servicing the loan is a whole other issue. Fortunately, Budget 2023 has taken their circumstances into account and provided some insights into the government’s initiatives to support them, such as the allocation of RM3bil into the Housing Credit Guarantee Scheme (HCGS) for gig workers, freelancers and small business entrepreneurs. The HCGS, by Syarikat Jaminan Kredit Perumahan (SJKP), provides for borrowers who do not have fixed income or salary statements. This can make it easier for gig workers to get approved for a housing loan.

Juwai IQI co-founder and group chief executive officer Kashif Ansari expressed optimism towards the budgetary measures in terms of affordability and in meeting growing housing needs. Since it was re-tabled back in February, assistance for gig workers to obtain mortgages greatly increases their purchasing power.

“There are more than four million gig workers in Malaysia. The scheme will help as many as 20,000 Malaysians buy their own homes and take a giant leap forward in creating financial security for their families,” he said.

In an article titled The Future of Gig Economy in Malaysia: Belanjawan 2023 by Islamic Finance Specialist Shamimi Mohd Zulkarnaini, she outlined the measures that would benefit the gig economy as a whole. Some RM40mil was further allocated to benefit 30,000 gig workers by providing RM300 for three months as a replacement income for active gig workers undergoing training programs through the Social Security Organisation (SOCSO).

More schemes to assist gig workers in purchasing homes include i-Biaya, a housing financing initiative under the Home Ownership Programme (HOPE) by the Ministry of Housing and Local Government (KPKT). It provides flexible financing to first-time home buyers, including gig workers, who do not have fixed income or salary statements. The maximum loan amount under i-Biaya is RM400,000 with a repayment period of up to 35 years.

Gig workers can also consider the My First Home Scheme (MFHS), a government-backed scheme that provides financing to first-time home buyers. The maximum loan amount under MFHS is RM300,000 with a repayment period of up to 30 years. Gig workers may be eligible for this scheme if they meet the other eligibility criteria, such as having a minimum income of RM3,000 per month.

The government’s initiatives in handling home ownership for gig workers are commendable and the 75% tax exemption for homes valued between RM500,000 and RM1mil will boost economic growth in the property sector as it recovers from the effects of the pandemic.

This article was first published in StarBiz7.

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