Contractors need not accept variable mortgage rate hikes
Their current mortgage is almost always the typical contractor’s largest monthly expense and in these still uncertain times, there’s a lot to be said for ensuring your repayments stay as low as possible, writes Tony Harris of specialist IFA Contractor Money.
Rise of the SVRs
Serving to add to the considerations that established and aspiring contractor mortgage holders need to make, the Halifax this week announced that it is increasing its standard variable rate (SVR) by almost half a percent from 3.5% to 3.99%. This is despite the Monetary Policy Committee at the Bank of England recently voting to keep the base rate at its historic low of 0.5% - something it’s done for the last three years. The increase from the UK’s biggest lender is sparking fears that the part nationalised bank has set a trend – because already other high street lenders are increasing their rates too (Santander and RBS have also hiked their SVRs).
Why are mortgage rates going up?
The lenders’ decisions to hike their SVRs are no doubt partly profit-led. But it’s also defensive, having been influenced by the difficulty the banks are currently facing when trying to source funds from the interbank markets. As a result of Euro-related pressures on the ability for banks to borrow from one another, they need to pass on the higher cost of borrowing to their customers.
What’s a contractor to do?
We spoke of the importance of remortgaging last August, when our recommendation was to take advantage of the historically low base rate to opt for a competitive discounted or fixed rate deal. Then, the rates available were much lower as the banks had ready access to funds to lend, but inertia inevitably takes hold when a borrower’s SVR is relatively low and so many did not heed this advice.
However the mortgage climate has changed dramatically in recent weeks and now that lenders have started increasing rates anyway, we recommend that there really isn’t any sense in waiting until the BoE base rate begins to rise again. By then, it could be too late to secure the current crop of competitive remortgage schemes.
With fixed and discounted rates available from contractor-friendly lenders (which are now well below almost all lenders standard variable rates), there really has never been a more financially-sensible time to switch and ensure that you won’t be caught out by your lender springing a new SVR on you.
Concerned about your contractor status?
In a fresh PCG poll, more than a third of contractors admitted that they were concerned about their ability to obtain a mortgage due to their ‘freelance’ status. But your independent status doesn’t have to hold you back from remortgaging to a better rate. CUK money club members receive access to specialist advice and mortgage underwriting based on a multiple of your annualised contract rate alone. This model saves you the hassle of providing up to three years' accounts and having to jump through hoops to prove affordability when you come to remortgage. This can prove invaluable when you need to make a speedy application as a result of your lender increasing their rates.
How to get a contract-based mortgage
And don’t think it requires a lot from you. Actually, in order to access the contract-based deals and secure a low fixed or discounted rate mortgage on your home, all you will need is:
- a copy of your current contract
- two forms of ID such as a passport, drivers licence and a utility bill from the last three months
- an up-to-date copy of your CV
- six months of business and personal bank accounts
If you have these items and documents, then your application should be quick and hassle-free. This could mean you saving money on your repayments within a matter of weeks, by which time even more lenders may have copied their rivals and hiked rates, making ownership of your home more costly than it is today.