Contractor remortgage prisoners can be free
By Tony Harris, an independent financial adviser to IT contractors.
A two-year lending drought has meant that a once competitive mortgage market has largely failed to function. Among the victims are thousands of contractors. They have been forced to remain on their lender’s Standard Variable Rate (SVR), once an initially fixed or discounted rate has expired, instead of remortgaging on to a better, more competitive deal with a different lender.
In recent weeks, however, this lack of competition seems to have tentatively lifted, as lenders have been seen starting to, once again, compete for customers.
Several mortgage companies have released what are their lowest rates since the credit crunch hit, offering schemes that the financially shrewd contractor will want to consider because these schemes could allow them to move off the SVR.
The average SVR is currently around 4%; even the former darlings to the freelance community, such as Standard Life, currently offer rates of more than 5%! Fortunately for those in the right position, contractors can now access competitive fixed and variable mortgage rates that are under 3%.
Last week, however, formal proposals to toughen up the lending criteria applied when taking out a mortgage as a self-employed person were said to have been shouted down by bigger lenders as appearing too difficult to implement. The Financial Services Authority has even been warned by lenders that it will create “mortgage prisoners” – people who are trapped and left without a mortgage or remortgage options. But at present, it is some lenders themselves who are making it increasingly tough for self-employed borrowers – or people whose income is irregular – to secure fresh lending.
What has not being pointed out, even to rebuff the suggestion that some people will end up trapped without the option of a mortgage, is the crop of specialist mortgage advisers who make competitive mortgage deals available to freelance and contract professionals. These deals are typically based on a multiple of a contract pay rate alone, rather than relying on accounts figures. In short, contractors with the right specialist broker can potentially avoid many of the problems that await the “self-employed.”
Ultimately though, with the lenders starting to jostle for custom, it certainly looks as if the mortgage freeze could be thawing. Contractors and their specialist mortgage advisors hope that this is not a temporary respite ahead of further tightening next year, when some financial commentators predict that the lenders will face their own refinancing issues. Still, after what has been a difficult time, the developments of late certainly give grounds for optimism.
Tony Harris is the managing director of specialist IFAs Contractor Money.