November 27th, 2013
The Governor of the Bank of England has urged lenders to continue their stringent underwriting of mortgage applications in order to avoid another property bubble.
Mark Carney stated “it is important that underwriting standards are maintained” when discussing the reckless mortgage lending of previous years combined with escalating house prices.
Mr Carney was addressing a Treasury Select Committee to explain how the Bank was going to ensure that another property boom and bust cycle was not beginning again.
The recommendation for banks to be strict with how they assess applications will not be new territory for contractors. Those working via their own limited companies, or using payroll companies, will know only too well that banks have rarely taken the lenient approach with them.
It wasn’t all doom and gloom for contractors however, as Mr Carney did go onto state to the Committee that the UK mortgage market still had further to go prior to reaching a plateau. His exact words eluded to ‘some room’ when discussing the growth potential of mortgage lending.
Taj Kang, Business Development Director at Contractor Mortgages Made Easy, urged caution to contractors when applying for mortgage funding.
“Contractors will not be strangers to stringent income assessment, mainly because the banks have always tended to penalise the self-employed or those working short term contracts. This is familiar territory.”
“Even though the advice from Mr Carney around strict underwriting is probably wise when looking at the whole lending market, one can only think that underwriters will continue to get a raw deal if they approach banks directly.”
This last comment is reference to the high instance of declined or delayed mortgage applications that many contractors have faced since the start of the year. Intermediary-friendly lenders with the most competitive rates, such as Woolwich and Accord, have traditionally had the most punitive policy for self-employed, with a virtually non-existent policy for those working short term contracts.
“For any contractors looking to investigate, or even apply for, mortgage funding in the next 12 months; it is vital that the potential hurdles are investigated. There can be conditions that even a contractor-friendly lender may want to enforce to grant a mortgage in the future, but if the dialogue with the lender is left until the last minute, it can cause a potential application to fail.”
“A good example of this is gaps between contracts. Some lenders can have second thoughts about lending to those who have had gaps longer than 4 consecutive weeks, whilst others will look at the overall strength of a mortgage application prior to making any snap judgements. Either way, it is good to know how the application will be underwritten well in advance to minimise potential problems later.”
Article by: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager