As festive decorations disappear into the loft for another 11 months, and the ‘new year, new me’ diet and exercise regimes start to grind us down, many contractors will be looking at their homes and thinking whether this year is the one to move home. So what issues will be facing those who need a mortgage to do this?
The Bank of England has started the year as they have the previous five years, by leaving the base rate well alone. The underlying rate of interest has now been at 0.5% since 2009. Many financial commentators believe that rates are unlikely to move until autumn of this year at the earliest. The general election in May has almost guaranteed the status quo for the first half of 2015. However, when the next rate rise draws closer, lenders are likely to re-price their rates upwards, particularly as we head towards the end of the year and they are close to hitting annual lending targets.
The impact will be higher mortgage payments and tighter affordability assessments by banks. The solution is simple, but ignored by many banks, particularly when approached by the contractor directly. Ask for the contract to be used to determine the relevant income.
Last year saw the largest raft of new mortgage rules to hit the UK at once. Lenders were obliged to analyse spending habits of any new borrower to take into account how they spend on non-essential items, as well as their basic livings costs and ongoing debts. As a result, there have been fewer mortgages agreed, more declines, and more given alternative lending proposals with less borrowing. Many of these have been as a result of perceived affordability problems in the future. When a contractor’s income is defined via their taxable draw from their limited company, or their umbrella company, they are at a distinct disadvantage.
It is fair to say that this is only an issue if you are looking to buy in certain areas. Unfortunately for most, it is only small pockets of the UK that are experiencing drops in price, for example, parts of Manchester and London that have increased a lot in recent years. A lot of the UK is predicted to go up in 2015 by varying degrees, and this means that delaying a move can inevitably cost more money, and involve a bigger mortgage. Those contractors who bought in London, Manchester or Aberdeen over three years ago can testify that they now own a much more valuable property today than the one they bought.
Andy McBride, Business Development Director at Contractor Mortgages Made Easy, sees a positive year ahead, despite the challenges.
“Many of the obstacles for contractors looking for a mortgage this year were also issues in 2014. The good news is that there are solutions in place, particularly around proving affordability for mortgages. As long as a freelancer can demonstrate longevity in what they do for a living, and also what they are worth via the day rate, lenders can respond in a positive way. Interest rates and property prices are things that cannot be influenced, unlike the mortgage underwriters who make the decisions on the application.”
Article By:Taj Kang, Business Development Director at Contractor Mortgages Made Easy
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