Contract mortgage applications at a two-year high
Stamp duty being suspended on properties valued up to £250,000, combined with mortgage companies showing a greater willingness to lend, has increased the number of contractors achieving home ownership, writes IFA Tony Harris, of ContractorMoney. In fact, the CUK Money Club just reported its best month for mortgages in two years.
The beginning of the end?
It is fair to say that times have been tough in the housing market since early 2008, when the 'credit crunch' pulled the rug from underneath the feet of many prospective homeowners. Since then, we have seen various attempts to bring the housing market back to health, but there have been only mixed signs of recovery. Until now.
April was our busiest month for our specially negotiated contract-rate-based mortgages since the beginning of 2008. Since then, contractors have been eager to take advantage of a renewed confidence in both the contract jobs and housing markets. We are not the only ones to notice the upturn: according to a recent survey by Rightmove.co.uk, 53% of you believe that house prices will increase this year, compared with just 10% this time last year.
Stamp duty was a Darling
One of the key contributors to ensuring that the rise in confidence is sustainable is probably going to be Alistair Darling's decision, when he was chancellor of the exchequer, to increase the stamp duty threshold to £250,000. This has definitely increased the number of enquiries that we have received from first-time buyers.
Crucially, these new buyers stepping on to the ladder for the first time can only be a good sign for homeowners looking to move up to the next rung.
The only homeowners likely to be cursing Darling's decision are those with properties over the £1 million mark, which will be subject to 5% stamp duty from April 2011, unless his replacement George Osborne puts a stop to this in his 'emergency' budget review, promised before July.
Offset shows its appeal
The growth in the number of contractors enquiring about mortgages has been helped by our specially agreed mortgage rates. One of the deals is an offset mortgage which is proving popular with contractors due to the flexibility it offers. We were lucky enough to be one of only 6 advisers in the UK to offer a certain offset mortgage scheme.
If you have savings, or leave a balance on your current account each month, then you could really benefit from getting these funds properly working for you with an offset mortgage.
The level of any mortgage debt that you pay interest on can effectively be reduced by any balance you hold on a linked credit account. You only pay interest on the difference between the two and this enables you to potentially reduce the term of your mortgage very substantially.
"This type of scheme is particularly useful for contractors who will have a varying amount of money in their account over the course of a year," explains Emma Chainey ContractorMoney.
"But contractors robably won't be happy paying off a large sum that cannot then be withdrawn in an emergency/time, or between contracts.
"Offset mortgages can also be used as a very effective tax planning tool by contractors. Instead of paying 20% or 40% income tax on savings interest in an ordinary account, you pay no tax because offset 'returns' are classed as avoiding interest on debt. If you pay higher rate tax then you could benefit from an effective rate of risk free investment return of 8% which compares very favourably with a pension or ISA."
Lenders support the upturn
Another factor that is boosting confidence in the housing market is that mortgage providers seem to be more willing to lend again since the start of 2010, which is a welcome relief to both first-time buyers and established homeowners. It follows a long lending drought and shows that things are improving slowly but surely for borrowers. In his last Budget speech, Alistair Darling voiced a commitment to encouraging lending in order to aid the recovery of the market. Assuming that the current chancellor, George Osborne, follows through with the widely-embraced nudge, then 2010 could be a good year for homeowners.
Tony Harris of ContractorMoney, a contract mortgage specialist, offering mortgages based on your individual IT contract rates. CUK readers can claim a waiver of the usual mortgage broker fees that normally apply, from advisors ready to hear your current or future requirements. Contact them at the CUK Money Club.