October 24th, 2013
Mortgage lending continues to gather pace this year, based upon information released by lenders this week, with more ominous news from the Bank of England following a few days later. Contractors may be left a little confused as to whether it is a good time to take the plunge or not.
The Council of Mortgage Lenders released figures last Friday confirming the expected acceleration in mortgage lending in the third quarter of 2013. These figures now match lending levels that were last seen in February 2008, when the now infamous credit crisis began with the run on Northern Rock, almost causing its collapse.
"Indicators suggest we are witnessing the strongest house purchase performance in five years," stated CML chief economist, Bob Pannell. "House prices too have revived, but modestly, aside from a resurgent London market."
The escalation in lending has fuelled house prices, assisted with initiatives like Help to Buy, and given some members of the Bank of England rate-setting committee to make predictions about when to increase rates.
Ben Broadbent, Monetary Policy Committee member with the Bank of England, has stated the following about interest rates in reaction to house prices and the economic recovery.
"I think there is a fair amount they could go up before borrowers got into great difficulties."
Mr Broadbent did go on to state that any rate increases would need to be handled carefully in order to allow the economy to recover.
As contract opportunities become more readily available (particularly in London for those with the right skills) professional contractors may be left wondering exactly how much they should commit to borrowing. Lenders who base borrowing on gross contract value can potentially lend large figures to a contractor, but what if the underlying interest rate makes an affordable mortgage today a massive burden in 3 – 5 years time?
A very relevant question, and one that needs to be put into context. Taj Kang, Business Development Director at specialist mortgage broker Contractor Mortgages Made Easy, makes the following observations.
“Any borrowing undertaken by a contractor needs to firmly evaluate affordability both now and in the future. It is advisable that this takes into account how quickly savings can be rebuilt after parting with a deposit and solicitor fees, and also ‘stress-testing’ affordability if the rates increase in the future.”
“Many contractors may take the cautious approach and wait to see what rates do prior to taking the plunge and buying, but this tactic has inherent risks as well. The property market is on the up in areas like London, and this will filter outwards to other regions in due course. Those who wait may find that they are looking to buy a home at a premium price, where the Bank of England may also be considering rate increases. A better option may be to buy sooner and opt for the longer term security of a fixed rate for some protection from increasing rates.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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