Why now's the time for contractors to remortgage
Funding for Lending officially ended for residential home loans in January but it has had no impact on the availability of competitive remortgage rates -- indeed, the scheme’s drying up for mortgages has coincided with a continued thirst for remortgaging, writes Tony Harris of IFA ContractorMoney.
Remortgage rates remain competitive for contractors
When the Chancellor announced he was ending the Funding for Lending (FfL) scheme for mortgages on the eve of his Autumn Statement, there were whispers in the press that it may have a negative impact on the low mortgage rates that we saw last year. Thankfully, the final whistle of FfL was barely heard in the mortgage market and actually, rates have continued to fall despite the withdrawal of the state scheme.
Contractors can still access competitive rates available based on contract rate alone or their company accounts if required, which is prompting many to step on the ladder or along it -- to remortgage.
In other words, your contractor status needn’t hold you back from remortgaging on to a lower rate. Indeed, many of our clients have saved hundreds of pounds a month in what is shaping up to be a record year for remortgage activity. In fact, lending to UK homeowners for remortgaging shot up to £3.1bn in January, representing a 51% growth on January 2013.
Why now appears to be the best time to remortgage
Many contractors approaching us about staying put in their current bricks and mortar but jumping onto a better deal initially ask, ‘Is now the right time to remortgage?’
With speculation over the base rate rising since Bank of England Governor Mark Carney revised his original forward guidance, there has probably never been a better time to opt for a fixed-rate mortgage.
This could save you, a contractor with a mortgage, an extremely large sum if the base rate starts to rise over the next two years, as lenders will be forced to increase their fixed and variable rates in response.
Doubters of this should bear in mind a new report from Barclays Mortgages and the CEBR. The report suggests that in the event that interest rates rise to 1.25% over the next 23 months, the average home will have to pay an additional three per cent – or £252 a year – on their repayments. And that forecasted, modest rise is currently considered the most likely outcome by the groups’ economists.
Remortgaging: market rates on offer
The good news is that, if you are seeking to remortgage onto a fixed rate with a view to saving money on your monthly repayments, there are some excellent rates available.
At 80% LTV you can access a 2.79% two-year fixed rate, with a £999 fee, through contractor-friendly lender Clydesdale. If you have more equity in your home then at a 60% LTV, you can access a two-year fixed rate with Halifax at just 1.79% with a £1,500 fee. This rate is available on loans over £200,000 and has been very popular with contractors recently.
Even better, for contractors who have two to three years’ worth of accounts, we can look at the whole of the market for you, not just the contractor-friendly lenders. This means that you could have access to even better rates, potentially saving you even more every month.
Kensington is the latest contractor-friendly lender
Still, while the whole market is worth getting a view of, don’t forget lenders like Kensington, as it has launched a new range of contractor-friendly products that are available to contract workers of any profession. This is a bold move by the lender, as many of its competitors have limited their contract-based underwriting to IT contractors only, or have limited potential applicants using a minimum income requirement.
We think freelance workers will be pleased that Kensington has publicly stated that contractors’ unique working status should not affect their ability to obtain a mortgage at an affordable rate.
To that end, rates being offered will begin at 3.44% for a two-year fixed rate up to 75% LTV; 3.99% for a two- year fixed rate to 80% and 4.74% for a two- year fixed up to 85% LTV. Each product will carry a £999 completion fee and £195 administrational fee.
Although we expect many contractors to be attracted by these rates, it will be interesting to see how flexible Kensington will be in regards to breaks in a client’s contract, as this can potentially be limiting for many contractors.
Don’t settle for the headline rate
This specialist lender may have been grabbing all the headlines recently, but they are by no means the only option for contractors hoping to move on, up or along the housing ladder this year. When it comes to moving along – remortgaging -- you should first consider speaking to an IFA, as the best ones can access the whole of the market, not least because many contractor-friendly lenders are now competing to offer the lowest rates.
A good IFA will do the research to ensure you get the best rate to suit your individual circumstances, which saves you the time and hassle of mounting such an investigation yourself. Remember though, all mortgage advisers receive commission from the lender when they secure your mortgage, but some brokers choose to charge an administration fee on top, which can add over £500 to your costs, so do make sure you question at the outset whether this charge will be incoming.
Editor's Note: Further Reading - What Budget 2014 means for contractors' pockets