The Bank of England have announced that they have held the base rate at 0.5%, as the attention of the world's economic policy-makers shifts to the UK housing market, and using a base rate hike to stem the increasing prices.
The International Monetary Fund (IMF) have echoed concerns raised by the Bank of England Governor, Mark Carney, that the escalating house prices in the UK are the biggest threat to any recovery, and could feasibly drag the UK back into a recession.
The growing attention on the UK property market, and the continuing changes to mortgage rules, has left many would-be borrowers looking nervously at their own prospects of obtaining mortgage funding. For many who are looking to make their first move, or indeed to up-size, the window of opportunity may be closing as a result of tightening lending rules.
In June, the Bank of England recognised the need to slow down mortgage approvals as the key driver in slowing down house price inflation. As a result, they implemented Loan to Income (LTI) caps on borrowers, where lenders are forced to ensure that no more than 15% of their overall lending was at a multiple of 4.5 times a borrower's income.
These caps came hot on the heels of the largest overhaul of the UK mortgage rules in April, when the Mortgage Market Review (MMR) placed responsibility on lender's assessing affordability for a would-be borrower in much more detail than before.
Some of the UK's largest banks reacted to this policy by going one step further, by imposing a 4 times income cap on large loans with immediate effect, even though the new LTI rules laid down by the Bank of England did not become mandatory until October of this year. Santander have now joined RBS, Nationwide and Lloyds Banking Group in imposing an earlier cap.
The IMF have welcomed the measures brought in by the UK central bank, but have also made a stark warning, that if the LTI measure does not work in slowing down property prices, the very next step must be an increase in the cost of borrowing.
The message from the IMF has been unequivocal on this point: “If these policy measures prove to be insufficient, then the Bank of England might want to consider an interest rate hike to tighten financial conditions.”
Sat Singh, Managing Director of specialist broker Contractor Mortgages Made Easy, interpreted the latest developments for contracting professionals in the UK, and how to plan around the changing mortgage landscape.
“Whilst there are differing opinions on when the rates should increase, this is only one factor that has to be considered by contractors who are looking to obtain a mortgage in the near future. Recent policy changes have only slowed house price growth by a small amount, so it it wouldn't be a surprise if rates increase sooner than most are predicting.”
Singh went onto factors in the control of the would-be borrower, rather than trying to predict what may happen next with mortgage rules.
“For those contractors who are planning to take a new mortgage, or indeed to restructure an existing one, it is important to get appropriate advice early, long before an application needs to be made. A suitably qualified professional can examine the timing of a mortgage application, and give guidance on what potential lenders will be looking for. Those who leave their mortgage arrangements until the last minute, may find that lenders have more conservative criteria they are working to, resulting in a lower borrowing figure, or a potential decline altogether.”
“In a mortgage landscape where demonstrating affordability is the key to obtaining a mortgage, it is vital that every penny of the contractor's income is utilised via bespoke underwriting.”
Article By:Taj Kang, Business Development Director at Contractor Mortgages Made Easy
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