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UK records steepest house price fall in nearly two years, Halifax figures show

The UK has recorded the biggest monthly fall in house prices since early 2021, according to an index.

The average property’s value fell by 0.4% in October, marking the third month-on-month drop seen in the past four months, Halifax said.

October’s month-on-month decrease follows monthly falls of 0.1% in both July and September and a 0.3% increase in August.

Meanwhile, annual house price growth slowed to 8.3% in October, from 9.8% growth recorded in September.

Across the UK, the average house price in October was £292,598, which was the lowest figure since May this year, although typical prices remained near record highs, according to the lender.

Elsewhere, annual price growth among home movers fell to 8.9% in October, from 10.3% in September.

The price growth slowdown for first-time buyers was more notable, slowing from 10.1% in September to 7.5% in October.

Given the greater challenges for first-time buyers in deposit-raising, plus tighter requirements for higher loan-to-value mortgages, the faster slowdown in prices is not surprising, the bank said.

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Kim Kinnaird, director of Halifax Mortgages, said: “Though the recent period of rapid house price inflation may now be at an end, it’s important to keep this in context, with average property prices rising more than £22,000 in the past 12 months, and by almost £60,000 [25.7%] over the last three years, which is significant.

“While a post-pandemic slowdown was expected, there’s no doubt the housing market received a significant shock as a result of the mini budget, which saw a sudden acceleration in mortgage rate increases.

“While it is likely that those rates have peaked for now – following the reversal of previously announced fiscal measures – it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause.

“Understandably we have also seen consumer caution grow as industry data shows mortgage approvals and demand for borrowing declining.”

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Last week, the Bank of England (BoE) increased the base rate to 3%, from 2.25% previously.

This was the latest in a string of base rate increases, meaning that since December last year the average monthly tracker mortgage payment will have increased by £284.17 in total, according to figures from trade association UK Finance.

Andrew Simmonds, director at Bristol-based Parker’s Estate Agents, said: “Since the summer, I’ve been telling vendors that their house is worth what it was worth 12 months ago. I’ve lost instructions because they’ve said ‘nah’.”

He added: “Plenty have since come back to me saying: ‘You were right’.”

Source: ITV News

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Mortgages difficult for self-employed say advisors

A new survey of mortgage advisors has found that the majority of them think that lenders are making it more difficult for self-employed people to get a mortgage, despite growing numbers opting for self-employment.

United Trust Bank carried out this survey and nine of every 10 advisors that responded to it said that the eligibility criteria for people who are self-employed has been made much stricter by mortgage lenders. In total, 91% of the advisors who took part in the survey told the bank that it is now harder than ever for the self-employed to secure a loan.

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This survey was part of a new report published by the bank that has been titled ‘Growing opportunities for brokers in the specialist mortgage market.’ The premise is that lenders outside of the big-name ones might offer a way for those with complicated financial and employment situations to get onto the property ladder.

According to Mortgage Strategy, this report goes on to argue that such people:

“Are a group which will continue to grow and that having lenders sufficiently skilled-up and with an appetite to cater for these customers is vital.”

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This is supported by the available evidence, which shows that self-employed numbers in the UK had reached 4.2 million by March of this year. These figures are provided by the Office for National Statistics.

Many mortgage advisors who have CeMAP training are already aware of the need to look to specialist lenders to meet the mortgage needs of self-employed clients and others with complex circumstances.

Source: Beacon Financial Training

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How to understand what’s going on with UK mortgage rates

The UK mortgage market has tightened as confidence in the economy has faltered in recent weeks. Lenders withdrew more than 1,600 homeloan products after the (then) chancellor Kwasi Kwarteng’s September mini-budget sent the UK economy into a tailspin.

Rates on the mortgage products that are still available have risen to record levels – average two-year and five-year fixed rates have now passed 6% for the first time since 2008 and 2010 respectively.

The Bank of England has intervened to try to calm the situation. But this help currently has an end date of Friday 14 October, after which it’s unclear what will happen in the financial markets that influence people’s mortgage rates.

This is a crucial issue for a lot of people: 28% of all dwellings are owned with a loan, with mortgage payments eating up about a sixth of household income, on average.

Looking at how the market has developed over time can help to explain how we got here and where we are going – which is basically headfirst into a period of high interest rates, low loan approvals and plateauing house prices.

All financial markets are driven by information, confidence and cash. Investors absorb new information which feeds confidence or drives uncertainty, and then they choose how to invest money. As the economy falters, confidence erodes and the interest rates that banks must pay to access funding in financial markets – which influence mortgage rates for borrowers – become unpredictable.

Banks do not like such uncertainty and they do not like people defaulting on their loans. Rising interest rates and uncertainty increase their risk, reduce the volume of mortgage sales and place downward pressure on their profits.

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How banks think about risk
Once you understand this, predicting bank behaviour in the mortgage market becomes a lot easier. Take the period before the global financial crisis of 2008 as an example. In the early 1990s, controls over mortgage lending were relaxed so that, by the early 2000s, mortgage product innovation was a firm trend.

This led to mortgages being offered for 125% of a property’s value, and banks lending people four times their annual salary (or more) to buy a home and allowing self-employed borrowers to “self-certify” their incomes.

The risks were low at this time for two reasons. First, as mortgage criteria became more liberal, it brought more money into the market. This additional money was chasing the same supply of houses, which increased house prices. In this environment, even if people defaulted, banks could easily sell on repossessed houses and so default risks were less of a concern.

Second, banks began to offload their mortgages into the financial markets at this time, passing on the risk of default to investors. This freed up more money for them to lend out as mortgages.

The Bank of England’s base rate also dropped throughout this period from a high of 7.5% in June 1998 to a low of 3.5% in July 2003. People desired housing, mortgage products were many and varied, and house prices were rising – perfect conditions for a booming housing market. Until, of course, the global financial crisis hit in 2008.

The authorities reacted to the financial crisis by firming up the mortgage rules and going back to basics. This meant increasing the capital – or protection – that banks had to hold against the mortgages they had on their books, and strengthening the rules around mortgage products. In essence: goodbye self-certification and 125% loans, hello lower income multiples and bulked-up bank balance sheets.

The upshot of these changes was fewer people could qualify to borrow to buy a home, so average UK house prices dropped from more than £188,000 in July 2007 to around £157,000 in January 2009. The damage was so deep that they had only partially recovered some of these losses to reach £167,000 by January 2013.

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New constraints
Of course, prices have boomed again more recently. This is partly because banks had slowly started to relax, although with less flexibility and more regulation than before the global financial crisis. This reduction in flexibility cut product choice, but low interest rates and low monthly payments have encouraged individuals to take on more debt and banks to grant more mortgages.

Availability of loans fuels house prices so the cycle starts again, although within a more regulated market this time. But the result has been largely the same: average house prices have risen to just shy of £300,000 and the total value of gross mortgage lending in the UK has grown from £148 billion in 2009 to £316 billion by 2021.

But when new information hit the markets – starting with Russia’s invasion of Ukraine earlier this year – everything changed and confidence tanked. The resulting supply-side constraints and spiking fuel prices have stoked inflation. And the very predictable response of the Bank of England has been to increase interest rates.

Why? Because increasing interest rates is supposed to stop people spending and encourage them to save instead, taking the heat out of the economy. However, this rise in interest rates, and therefore monthly mortgage payments, is happening at a time when people’s disposable income is already being drastically reduced by rising fuel prices.

Mortgage market outlook
So what of the mortgage markets going forward? The present economic situation, while completely different from that of the 2008 financial crisis, is borne of the same factor: confidence. The political and economic environment – the policies of the Truss administration, Brexit, the war in Ukraine, rising fuel costs and inflation – has shredded investor confidence and increased risk for banks.

In this environment, banks will continue to protect themselves by tightening product ranges while increasing mortgage rates, deposit sizes (or loan-to-values) and the admin fees they charge. Loan approvals are already falling and cheap mortgages have rapidly disappeared.

Demand for homeloans will also keeping falling as would-be borrowers are faced with a reduced product range as well as rising loan costs and monthly payments. Few people make big financial decisions when uncertainty is so high and confidence in the government is so low.

Optimistically, the current situation will cause UK house prices to plateau, but given the continued uncertainty arising from government policy, it’s realistic to expect falls in certain areas as financial market volatility continues.

Source: The Conversation

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Truss to announce stamp duty cut – report

UK housebuilders rallied on Wednesday following a report that Friday’s mini-budget could include a plan to cut stamp duty.

According to The Times, prime minister Liz Truss will announce the move in the mini-budget in an attempt to drive economic growth. It was understood the PM and chancellor Kwasi Kwarteng have been working on the plans for more than a month.

Truss believes that cutting stamp duty will encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder, The Times said.

It cited two Whitehall sources as saying that cuts to stamp duty were the “rabbit” in the mini-budget, which the government is billing as a “growth plan”.

Under the current system, no stamp duty is paid on the first £125,000 of any property purchase. Between £125,001 and £250,000 stamp duty is levied at 2%, £250,001 and £925,000 at 5%, £925,001 and £1.5m at 10% and anything above £1.5m at 12%. For first-time buyers the threshold at which stamp duty is paid is £300,000.

During the pandemic, then chancellor Rishi Sunak lifted the stamp duty threshold to £500,000.

At 0910 BST, Persimmon shares were up 5.4%, while Taylor Wimpey and Barratt were up 4% and Berkeley was 3.5% firmer. On the FTSE 250, Redrow was 5.6% higher, while Bellway and Crest Nicholson were up 3.6% and 3.4%, respectively.

Tom Bill, head of UK residential research at Knight Frank, said: “Nobody can accuse the new government of lacking an economic vision. If its low-tax approach extends to stamp duty, recent history tells us it will trigger higher levels of demand in the housing market at a time when mortgages are getting more expensive, which will support social mobility.

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“Prices could move higher in the short term if supply initially struggles to keep up but more balanced conditions will return provided the cut is immediate and permanent.”

Neil Wilson, chief market analyst at Markets.com, referred to the potential stamp duty cut as “the old Tory trick of juicing the housing market in its heartlands to boost confidence (wealth effect) whilst doing not a lot for housing supply”.

“I’m not for concreting over the green belt at all, but there will be questions about the economic soundness of this policy, as there always is. However, with interest rates rising so quickly, an offset to the cost of buying a home would grease the wheels of the market -without higher rates could cause the housing market to seize up.”

He added: “Clearly a stamp duty cut is good news for housebuilders who can expect higher selling prices as a result.”

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, argued that a stamp duty cut could do more harm than good.

“Buyers are unlikely to be unhappy at the prospect of a tax cut, but if the government chooses to cut Stamp Duty in an effort to stimulate the housing market, there’s a risk it could do more harm than good.

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“It’s easy to see why the government is concerned about the housing market. We’ve seen demand fall consistently since May, when rocketing bills, rising house prices and ever-increasing interest rates started to take a toll on buyer enthusiasm. There’s a risk that if rate rises accelerate, pressure on buyers could reach a tipping point, where demand dries up.

“We know from very recent experience that a Stamp Duty holiday can stimulate demand. However, the only reason these holidays work is because people feel they have a small window of opportunity to take advantage, otherwise they’ll miss out. The point at which they think they can just wait for the next one, they will start to become less effective.

“Even if it does stimulate demand, it overlooks the fact that the real brake on the property market is a severe shortage of supply. With an average of 36 properties on each agent’s books, we’re still close to an all-time low in the availability of property for sale. Driving demand without addressing supply would risk more buyers chasing a tiny number of properties, which would push prices up.

“By ramping up prices at a time of rising mortgage rates, the end result would be higher monthly mortgage costs, which would be increasingly unaffordable. And the Stamp Duty holiday wouldn’t help on this front. This in itself could be enough to put buyers off, and if it deters enough of them, it could end up having the opposite impact to the one that’s intended.”

By Michele Maatouk

Source: Sharecast

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Bank of England to suspend market operations for State funeral

The BoE said CHAPS will be closed on 19th September, in line with its normal bank holiday arrangements.

CHAPS handled around 174,000 payments each day, in the year to February 2021, with an average payment value of £2.1m. That works out at around £367bn each working day.

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CHAPS is used by banks and large corporations to settle high-value money market and foreign exchange transactions, by companies to pay taxes, and by solicitors and conveyancers to settle property transactions.

The Bank’s Real Time Gross Settlement (RTGS) service, which underpins large transfers between bank accounts, will also be closed.

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Back in 2014, RTGS collapsed for most of a day, putting thousands of housing market transactions on hold.

Last week the BoE said the sale of corporate bonds held by the Asset Purchase Facility will be delayed by a week, to 26 September, following its decision to delay its next interest rate decision by a week (to 22nd September).

Source: London Loves Business

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Fall in UK house prices ‘should be taken with a pinch of salt’

A fall in house prices in July 2022 should be taken with a pinch of salt, a contractor mortgage brokerage today warns.

Freelancer Financials, which specialises in mortgages for contractors, sounded the cautionary note this morning, following the Halifax recording the first property price dip in 13 months.

The limited company-friendly lender found that average house prices fell between June and July by 0.1%, while the annual rate of price growth over the same period eased from 12.5% to 11.8%.

The first of its kind since June 2021, the 0.1% fall takes the average property price tag to £293,221, down £365 on the previous month’s record-high, Halifax said.

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‘Stimulated’
But it is probably unfair to compare today’s house prices with 2021’s — when the stamp duty holiday “stimulated the market,” according to Freelancer Financials’ John Yerou.

“Plus, there is usually a seasonal drop-off in the summer months of July and August,” continued Mr Yerou, the brokerage’s chief executive.

“This fall in prices is only fractional …[and] comparing 2022 with pre-pandemic levels, in 2019, demand is still up.”

Similarly, despite the fall of just 0.1% on a monthly basis, house prices remain more than £30,000 higher than this time last year, observed Halifax’s managing director Russell Galley.

‘Bigger houses, biggest price gains’
The lender signalled that contractors looking to move up the property ladder will probably benefit the least from the tiny price fall, because the gains in the values of larger homes are still strong.

Price gains for “bigger houses” even outpaced those for smaller homes in July, with the price of a detached property inflating by £60, 860 (+15.1%), versus £11,962 (+7.7%) for flats.

“Although this fall in house prices seems to indicate that the housing market is cooling off… [it[ should be taken with a pinch of salt,” cautioned Freelancer Financials’ Mr Yerou.

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‘Drivers of buoyancy remain’
“We shouldn’t read too much into any single month”, agreed Mr Galley of Halifax.

“Leading indicators of the housing market have recently shown a softening of activity, while rising borrowing costs are adding to the squeeze on household budgets against a backdrop of exceptionally high house price-to-income ratios.”

Galley added that some of the “drivers of the buoyant market” of late, such as extra funds saved during the coronavirus pandemic and changes to how people use their homes, remain.

However Halifax says the “extremely short supply” of homes for sale is serving to “underpin” property prices at a high level.

‘Negotiating power gradually shifting’
At Freelancer Financials, Mr Yerou shared his outlook with ContractorUK: “Several indicators point to activity in the market continuing to cool from the lofty heights of the last two years.

“It is likely that the impact of interest rate rises will gradually trickle through, but right now they’re not having a serious impact on the property market. Yes, demand has lightened a fraction and negotiating power is gradually shifting to buyers, but until the imbalance in affordable properties is addressed, house prices will remain stable.”

By Simon Moore

Source: Contractor UK

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Why contractors don’t normally need the Bank Of Mum & Dad to buy a home

Amid research showing that the ‘Bank Of Mum and Dad’ is doing a brisk business, it’s worth pointing out that in our experience, the number of first-time-buyer contractors utilising a limited company but requiring help from BOMAD is minimal, writes John Yerou, CEO of Freelancer Financials.

Contractors and the Bank Of Mum & Dad

Or at least, it’s minimal among contractors compared to their permie counterparts. Nearly all limited company contractors manage to save a minimum of 5-10% deposit without family help. The majority of PSC contractors who do get help from BOMAD are those who are trying to put down larger deposits — to get more favourable interest rates.

But how did we get here? How did we get to the Bank of Mum and Dad, potentially even propped up by the Bank of Auntie (‘BoA’), lending to those in need of a home loan? And why does it matter if you’re reading this as a limited company director who might need to open an account with BOMAD or even BoA?

Get in touch with UK Contractor Mortgages today to discuss your Buy to Let & Residential Mortgage requirements.

As safe as houses?

Well, following the 2007/2008 financial crises, the UK became home to tens of thousands of mortgage prisoners. These were homeowners who’d bought at the crest of the property market boom only to see it bust and shower them with shortcomings.

They thought, like many, that property investment was as safe as houses. But one global slump later, they found themselves in negative equity with outstanding mortgages greater than the value of their homes. To a lesser extent, there’s a real possibility of that happening again, post-covid. But that’s an aside to perhaps consider further down the line.

Mortgage prisoners removed many homes from the marketplace — their owners becoming stuck until house prices rose again. But even then, the sharp rise in the price of housing stock in the run-up to the crises made owning a home all but impossible for the younger generation or other first-time buyers.

Get in touch with us today to speak with the UK’s Best Contractor Mortgage Broker.

Extraneous factors fuelling the fire

Running alongside this phenomenon was rising EU immigration and successive governments failing to meet affordable housing targets. Tag on post-bust ‘Responsible Lending,’ which introduced stricter lending criteria, and the restrictions imposed on young borrowers formed a formidable, often unsurmountable barrier.

That interest rates plummeted to historical lows and Stamp Duty holidays became de rigeur didn’t matter. If you couldn’t afford the deposit — and at one point, you couldn’t get a mortgage with less than 15% — the first rung on the property ladder was out of reach.

Even if by some chance, young individuals and couples managed to find a home, afford and save a deposit, it was only the first stepping stone across a raging river. But such is the Brit way of life, from this adversity a solution came to prominence — the Bank of Mom and Dad (BOMAD).

Are you a limited company director needing a loan from BOMAD?

Since the pandemic, lending criteria have become protracted, for everyone, not just the self-employed.

One area that lenders’ mortgage advisers seem more interested in than ever is where a potential borrower found their deposit. These advisers on behalf of the lenders ask us, so we in turn have to ask our clients!

Now, we don’t just deal with contractors. We secure mortgages for all — sole traders, freelancers and even employed people referred to us by their contractor friends. And this is where we see a sharp difference in BOMAD borrowers.

Yes, we deal with contractors earning £50,000 a year. But they’re somewhat the exception. Many of our contractor clients earn upwards of £300/day. To get a mortgage with Halifax (unless they’re an IT contractor), they have to earn at least in excess of £75,000 a year.

This puts contractors in, typically, a higher income bracket than many other young people, even than permies who do the same job. This means they can save a lot harder, especially if they’re working through their own limited company (or Personal Services Company). Thus, contractors’ reliance on BOMAD is greatly reduced compared to the national average first-time buyer.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

Almost half of other first-time buyers use the Bank Of Mum & Dad

That contractors are more likely to go it alone bears out in our figures, too. Only around 5-10% of higher-end contractors lean on relatives for help with a deposit. In contrast, getting on for 20% of permies or sole traders/freelancers get help from their families to buy a home.

Across the industry, it’s expected that almost half a million borrowers will have borrowed from BOMAD in the three years up to 2024 — almost half of all first-time buyer activity. So a total of (roughly) £25billion families will have forked out to help their offspring move out.

Why BOMAD matters (answer: the lenders are interested in the source of your deposit)

One reason lenders ask where the deposit has come from is to help determine the applicant’s mortgage affordability.

If the money is a gift from parents, either from their savings or they’ve released equity to donate to their offspring’s cause, all well and good. But if that money has to be repaid, it’s as well to understand that the buyer can afford to repay both the mortgage and the BOMAD loan from the outset.

Banks need to know this in order to make an informed decision. But it’s a good exercise for the benevolent parents as well. The last thing anyone wants is rifts in the family due to money issues, especially where siblings may feel the impact of one of them welching on repaying back into the inheritance pot.

BOMAD stigma in the banking industry

With so much transactional cash involved, we understand why the financial authorities want to keep tabs on such activity. And that’s part of the reason, I guess, why people only mutter that they’ve borrowed from relatives rather than proclaim it.

It’s this stigmatism that large sections of the industry want to see eradicated. And, due to the current economic forecast, it may well become the norm that first-time buyers are expected to get help from relatives. And the more open we can be about the often-taboo subject of money the better off we’ll all be.

By John Yerou

Source: Contractor UK

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What the BoE’s 1.75% interest rate means for contractor homeowners

The Bank of England (BoE) last week increased its base rate to 1.75% from 1.25%. This was the sixth consecutive rise in interest rates, taking it to the highest level since the credit crunch in 2008.

But as many temporary professionals are asking us, writes John Yerou, chief executive of Freelancer Financials, what does this significant leap mean for borrowers who are contractors?

Up, up and away
Struggles facing the economy have led to a prediction of 13% inflation by the end of 2022. Economists reckon it could potentially reach 15% in 2023. These figures are far cries from the BoE’s target inflation rate of 2%.

These predictions, against a background of soaring energy bills and spiralling food prices, have forced the BoE’s hand.

Over the last three quarters, the bank’s Monetary Policy Committee has steadily nudged up interest rates from its historic low of 0.1%. This week’s 0.5% increase, however, represents a more forceful move as the BoE grapples to contain inflation.

Additional rate rises by the bank look certain, driven by:

  • the worst credit squeeze on consumer spending in years,
  • severe labour shortages, and
  • spiralling high food, energy, and fuel price hikes.

With the ever-growing economic challenges facing the economy, the question isn’t if increases are coming, rather — it’s when, and by how much.

Get in touch with UK Contractor Mortgages today to discuss your Buy to Let & Residential Mortgage requirements.

Will interest rate hikes curb inflation?
This latest interest rate rise to 1.75% is another blow to economic confidence. It places yet more financial strain on recovery as everyone continues to grapple with rising costs.

The reality is that it all makes the impending recession a self-fulfilling prophecy. How so?

Well, the governor of the Bank of England, Andrew Bailey, has been facing mounting pressure to keep up with the pace of global central banks. Both the European Central Bank and the US Federal Reserve have implemented rate increases of 0.5% and 0.75% respectively. This, in turn, has forced the Bank of England to act similarly to try and rein in rising inflation.

But we now question whether raising interest rates is the best way forward under the current conditions.

The textbook approach (isn’t going to cut it)
Any decent textbook on the topics of economics and finance will tell you that, yes, increased rates are the primary tool for reducing inflation. It reduces demand and helps to bring inflation under control.

And this is exactly what the BoE is doing; it’s textbook. By increasing the cost of borrowing, it’s trying to discourage spending. This theoretically leads to lower economic growth and lower inflation.

But will increased interest rates curb inflation in the traditional manner? In our humble opinion, unfortunately, no. That’s because the challenges we face are, to a great extent, unprecedented.

The catalyst for soaring food, energy, and fuels prices is the exceptional melting pot of global factors we face today:

  • successive covid lockdowns,
  • supply chains crippled (some fatally so)
  • the war in Ukraine, and,
  • worldwide labour / skills shortages.

This mix does not represent the usual backdrop for recession!

Get in touch with us today to speak with the UK’s Best Contractor Mortgage Broker.

Should contractors be panicking yet?
The 0.5% base rate rise and spiralling inflation headlines will leave many homeowners deeply anxious. And while it represents the largest individual hike in nearly 30 years, it wasn’t actually a surprise.

Those contractors old enough to remember the 80s and 90s may view today’s jump as no reason to panic (just yet).

But for the group of homeowners who’ve only ever known a sub-1% base rate since purchasing their home, it will certainly set off alarm bells.

It’s worth reiterating here that rates are low compared to historic levels. But the rise will affect monthly repayments and individuals’ abilities to borrow. So let’s look at the different scenarios.

What does this 27-year high in interest rates mean for UK borrowers and homeowners?
In the short term, the increase will undoubtedly spur another round of mortgage rate increases from ALL major high street lenders, including contractor-friendly lenders.

Interest rates are already 2% higher than they were at the start of the year, despite the base rate only moving up 1.25% over the same period.

Homeowners on tracker rate mortgages or their lender’s standard variable rate will see their repayments increase. Predictably, this group (some 21% of UK mortgagees), will be the first and hardest hit.

Mortgage borrowers on fixed rates will be protected from the immediate effects of the rate rise. But if you’re a contractor on fixed-term deal which expires in the next 12 months, you will need to be prepared. When you come to remortgage, you’ll see a sharp rise in the interest rates available.

What a mortgage broker can do for you in these uncertain times
Over the past few months, our mortgage brokers have played key roles in helping contractors and self-employed clients ‘lock-in’ competitive interest rates for the future. But the landscape on which they’re doing battle is changing.

We’re already seeing lenders tightening underwriting criteria for first-time borrowers, home-movers and further borrowing.

Applications are taking far longer to process because of increased ‘due diligence’ (whether that due diligence is necessary or not). And affordability calculators are changing every week, shrinking the window of opportunity even for borrowers who may have previously considered themselves well-heeled. These dynamics are making it tougher and more challenging to place mortgage applications.

Our brokers are having to demonstrate incremental creativity and tenacity to pair and select the most suitable lenders. Even so, we retain our ethos of matching clients to lenders whose products and services meet their specific needs. This ensures the underwriting teams we deal with take a common-sense view of the bigger picture — as far as affordability checks go.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

The current backlog at lenders: sorry, lenders but you’re not helping yourselves!
Another problem mortgage brokers face when base rates increase is that lenders almost immediately start withdrawing their current products.

Moneyfacts has recently reported that the average shelf-life of any single mortgage product is 17 weeks. That represents the shortest shelf-life on record. This lack of notice creates mayhem for mortgage applications in the pipeline that haven’t been secured.

Many of our clients have seen this coming, however. In recent weeks and months, our brokers have been receiving calls from clients with over 12 months remaining on their fixed term. They’ve been demanding urgent reviews in order to lock in a competitive fix rate; so concerned are they that interest rates are spiralling out of control.

If you’ve not acted yet, it’s not too late. No matter how difficult market conditions become, there are always options available through the right channels. We can help people achieve their homeownership dreams, irrespective of how they are employed. Yet contractors please note, the earlier you engage a mortgage broker’s service, the greater the options and support you will receive.

Moving forward, flexibility from lenders is going to become increasingly important. In the current climate, using rigid tick-box practices for underwriting will fail to serve the needs of many self-employed property buyers. Our goal is to ensure that, even for those most complex of income structures, we find wiggle room — with at least one lender!

Housing market
Over the last couple of years, we have seen extraordinary demand for property purchases. Low interest rates that have made getting a mortgage a lot easier have supported this trend.

But last week’s 0.5% interest rate jump will slow house price growth. Potential homebuyers will become more hesitant over fears of rising interest rates and inflation. However, we don’t foresee a crush or drop in housing prices as we did after 2008, just a cooling-off period. This isn’t a bad thing!

We will see a power shift though. Up until recently, all the negotiating power has been with the sellers. This might start shifting to buyers in the coming months as dwindling interest forces property owners to sell at more reasonable prices.

Behind the headlines…
It was inevitable that mortgage interest rates would increase eventually. They were never going to remain abnormally low forever.

In the short-term lenders will tighten their affordability calculators and underwriting criteria until the dust settles.

And although most lenders have accommodated specialist income such as that of limited company or umbrella contractors in more recent times, independent professionals may find more barriers than their permie peers in the interim.

Nonetheless, our belief is that the fundamentals of the economy are fine. So ignore the scaremongering from some quarters.

Keep in mind, the circumstances affecting today’s surging inflation and cost of living have been brought on by Covid lockdowns creating temporary labour shortages and production issues. The current supply cannot meet the demand – it really is as simple as that. The invasion of Ukraine has also exerted a serious impact on inflation, affecting energy and fuel prices. While serious, none of these aren’t permanent fixtures.

We should also recognise that lenders increasing interest rates isn’t always a response to a change in the cost of funds alone. Sometimes, like now, it’s a response that will help them manage their service levels.

Time after time this has occurred in the past, notably when banks are struggling to cope with the volume of applications. They push up rates to make them less attractive to borrowers. They’ll then reduce rates once they can resume service levels!

Many banks are still understaffed and struggling to cope with application volumes. Swathes of their staff still work remotely, another factor making applications take nearly twice as long as before covid.

What contractor mortgage-holders should do next
One of the key ways to determine where lenders’ interest rates will go (next) is to look at SWAP rates.

SWAP rates are what lenders pay to financial institutions in order to acquire fixed funding for a specific duration. This could be anywhere between one to 10 years.

The cost of this SWAP rate will then be used to price up mortgage products for lenders to secure a profit margin. At the time of writing, current three, five and ten-year money funding is all lower than two-year funding rates, which implies that rates will peak — but start to come back down again.

As a contractor with a mortgage, what your next move is will depend on your current home loan small print and its associated fixed term. We’ve outlined different scenarios for remortgaging on our blog for you to consider. Alternatively, ask us about your current situation and our brokers will outline the avenues open to you. But do ask, and at the risk of repeating myself — act.

By John Yerou

Source: Contractor UK

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Mortgage affordability test scrapped by Bank of England

Mortgage borrowing rules have been eased after the Bank of England scrapped an affordability test.

The “stress test” forced lenders to calculate whether potential borrowers would be able to cope if interest rates climbed by up to 3%.

Removing the test may help some potential borrowers get loans, such as the self-employed or freelance workers.

But other rules such as strict loan-to-income limits will not make it easier for most people to get a mortgage.

The withdrawal of the affordability test was announced in June but has come into effect on Monday.

Get in touch with UK Contractor Mortgages today to discuss your Buy to Let & Residential Mortgage requirements.

“Scrapping the affordability test is not as reckless as it may sound,” said Mark Harris, chief executive of mortgage broker SPF Private Clients.

“The loan-to-income framework remains so there will still be some restrictions in place; it is not turning into a free-for-all on the lending front.

“Lenders will also still use some form of testing but to their own choosing according to their risk appetite.”

In other words there will not be an immediate impact for borrowers as lenders will not need to change the way they assess loans.

However, some may well change their own rules in the future.

Mark Yallop, chairman of the Financial Markets Standards Board, said although the change would make it “slightly easier” for some borrowers to get a mortgage, he did not think with would have a significant impact.

“The biggest constraint on new mortgages is the ability of borrowers to afford a deposit,” he added.

Get in touch with us today to speak with the UK’s Best Contractor Mortgage Broker.

What was the scrapped test?
The mortgage affordability test was introduced in 2014 as part of a widescale tightening up of the mortgage market to ensure there were no repeats of the mis-selling scandal that partially contributed to the 2008 financial crisis.

The rule was put in place to ensure that borrowers did not become a threat to the financial stability of lenders by taking on debt they subsequently might not be able to repay.

Lenders had to not only work out if borrowers could afford a mortgage at the rate they were being offered, but also work out how they would be affected if interest rates soared by 3%.

Borrowers who could not prove they could cope with such an eventuality might have been turned down for a loan on that basis, even if they could easily afford a mortgage at the existing rate.

For that reason the test was seen by some as a barrier for some borrowers.

“The rule change could have a positive effect on borrowers who have been disadvantaged when it comes to getting on the property ladder,” said Mr Harris.

For example, some potential first-time buyers who have been comfortably affording rents far higher than potential mortgage payments have failed affordability assessments.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

What checks remain for borrowers?
There are some key protections in place to help ensure that borrowers don’t take on loans they may not be able to afford.

The main one is a loan-to-income “flow limit” which limits the number of mortgages that lenders can grant to borrowers at ratios at or greater than 4.5 the borrowers’ salary.

In short, it is very rare that a lender will consider a higher loan-to-income ratio because of the restriction.

After a review of the rules in 2021 the Bank of England’s Financial Policy Committee judged that “the LTI flow limit is likely to play a stronger role than the affordability test in guarding against an increase in aggregate household indebtedness and the number of highly indebted households in a scenario of rapidly rising house prices”.

“The change in the affordability rules may not be as significant as it sounds as the loan-to-income ‘flow limit’ will not be withdrawn, which has much greater impact on people’s ability to borrow,” said Gemma Harle, managing director at Quilter Financial Planning.

The FCA’s Mortgage Conduct of Business responsible lending rules also require a wide assessment of affordability.

By Simon Read

Source: BBC

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The ‘gig economy’ is not the home buying hurdle you may think – Whitear

One of the most common misconceptions among the self-employed is that securing a mortgage to buy a home is fraught with obstacles, therefore making it extremely difficult or practically impossible to get onto the property ladder.

Despite this sometimes being the case in the past, the market has evolved significantly to make it easier for those with a self-employed status or irregular income to obtain a mortgage.

In fact, catering for the borrowing needs of the self-employed has become vitally important as this demographic represents a strong proportion of UK population. This was highlighted in April 2022 figures from Statista which showed that there were approximately 4.21 million self-employed people in the UK.

Get in touch with UK Contractor Mortgages today to discuss your Buy to Let & Residential Mortgage requirements.

Multiple incomes
Traditionally, a self-employed status has been commonly used to refer to freelancers, contractors and sole traders, yet it can also extend to company directors, individual partners and anyone not in a salaried employee position. In addition, the emergence of the gig economy – where people earn an income per project or task – means that those earning multiple incomes can also fall under the self-employed umbrella.

And this is an area which is enjoying an impressive growth spurt.

According to ‘Fuelling the Global Gig Economy’, a report produced by Mastercard, an estimated 7.25 million are predicted to be working in the UK gig economy by the end of 2022. Which means that understanding and catering for this growing demographic is more important than ever.

Get in touch with us today to speak with the UK’s Best Contractor Mortgage Broker.

Tailored underwriting
For intermediaries looking to secure a mortgage for a self-employed client, one of the most important elements to consider is whether a lender can assess each application on its own merits rather than adopting a one-size fits all approach. This is because the fluctuating nature of self-employed income levels means no two applicants are the same, so tailored individual underwriting rather than the use of a blanket automated underwriting system can prove crucial.

In many cases, the mortgage products on offer to self-employed clients are to the same as those for employed borrowers: it’s how the loans are assessed that varies.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

Strategies vary
Different companies have varying strategies on managing balance sheets, cash flow and the distribution of profits and dividends, which is why individual assessment by the lender is necessary. A manual underwriting process can provide lenders with the ability to look beyond a more ‘basic’ overview of incomes and creditworthiness for such borrowers.

Affordability is all about what the future will look like based on past performance and this is an area where specialist lenders and such an approach can make a real difference.

Traditionally, two to three years’ worth of audited accounts were required on application, with net profits and director’s remuneration plus dividends considered as income for those running a limited company.

However, different lenders have differing approaches. For example, at Foundation Home Loans, we consider a minimum of one year’s accounts, and where a company director owns 20 per cent or more of the company shares, they will be classed as self-employed.

Self-employed lending
Mortgages for the self-employed are a particularly important area for brokers to market because of the lingering misconceptions around them. In our own borrower survey, 62 per cent said they believed it was significantly more difficult to secure a mortgage as a self-employed person, although only 14 per cent had been turned down because of it.

A range of competitive and responsible lending options remain available to this essential component within the UK work force. It will be mortgage intermediaries who open those doors for those clients the specialist lending marketplace who will continue to lead the way in delivering the types of solutions which can make a real difference for the self-employed population.

By Mark Whitear

Source: Mortgage Solutions