The Bank of England have again held interest rates at their current level, as Bank boss Mark Carney warned that the first rate change since 2009 is edging ever closer. Pointing to economic growth figures for the UK being amongst the strongest in the G7 group of wealthy nations, Mr Carney advised that the trend for maintaining the status quo amongst the rate setting committee was now at an end.

“With many of the conditions for the economy to normalise now met, the point at which interest rates also begin to normalise is getting closer,” Carney stated when addressing an insurance industry conference two weeks ago. “While there is always uncertainty about the future, you can expect interest rates to begin to increase.”

Whilst having little direct relevance on contractors and freelancers in the UK, wage growth has been identified as the key number to watch in the economic data, as an increase in this number will herald an increase in the rates. The powers-that-be do not want a swathe of repossessions in lower income families to threaten the robust recovery that is taking place.

Of greater relevance to contractors will be the latest raft of new rules to be implemented around mortgage lending for banks. The Bank of England have flexed their muscles under new powers that were granted to them last year. They have now imposed a cap of 4.5 times income to 85% of lenders’ mortgage applicants, in a move designed to put the brakes on mortgage lending, and therefore the UK property market. These rules were announced in June to take effect in October, in order to cool borrowing requests that stretched borrowers.

They seem to have had the desired effect, with Nationwide reporting that September saw the first drop in UK house prices for 17 months.

Andy McBride, Business Development Director at specialist broker Contractor Mortgages Made Easy (CMME), commented on the relentless mortgage legislation and economic data hitting the media, and what it will mean for contractors who may be entertaining mortgage funding in the coming months.

“It is reasonably obvious that rates will increase as soon as wage growth takes place in the UK, and according to national figures, this could happen early next year. If you combine this with the slow-down of house prices, there could be a decent short-term window of opportunity for some contractors to take advantage of low rates and uncertainty around house prices.

“It is basically becoming easier to negotiate a decent price on residential UK property if you have the mortgage secured and the evidence of this readily available.”

McBride went on to discuss the impact of levelling house prices and potentially higher rates for those contractors who have mortgages already, but have been waiting for the right time to secure a good long-term fixed deal.

“It was interesting to see one of the largest survey companies in the UK report an increase in instances of down-valuations this week, with over 22% of all properties valued in the UK being given a down-valuation. This is a staggering figure, and suggests that those wanting to remortgage should have a look at the very competitive fixed rates available to lock in their payment at a low rate for the medium term.

“This is particularly important when the property value is being slowly eroded and the cost of borrowing is about to go up. Waiting for that rate increase could mean missing out on record-low deals, such as the 5 year fixed rates offered by many contractor-friendly lenders.”

Article By:Taj Kang, Business Development Director at Contractor Mortgages Made Easy

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