Contractor Mortgages Contractor Pensions Contractors

Many contractors thinking about taking out a mortgage (or re-mortgage) over the past two years will have been more aware than most about the increased scrutiny with which lenders view mortgage applications. So, what is the outlook for the contractor mortgage market in 2010?

Favourable mortgage rates have been available all along if you are able to put down a sizeable deposit (typically of 25% or more), however contractors with smaller deposits will typically pay substantially higher rates.

The self-cert mortgage 'ban'

On top of the existing tightening on mortgage lending as a whole, back in October 2009, the FSA also announced that 'self cert' mortgages would be outlawed, in an attempt to encourage more responsible lending. However, most self cert lenders had already left the market at this time, as our mortgage expert Tony Harris commented:

"I think that the self employed have been caught in the crossfire as the FSA have been increasingly keen to be seen to be acting tough with the banks. In 2007, an estimated third of all mortgages approved were not backed by proof of income and a higher proportion of these loans have apparently now fallen into arrears. The FSA has belatedly become concerned about the potential for fraud and for consumers to overstretch themselves and it therefore no surprise that there is now speculation that they will ban self certs altogether."

Will offset mortgages become more popular in 2010?

In the post-crunch world, contractors may increasingly be considering 'offset mortgages', as lenders look more at the lifestyles of mortgage applicants rather than traditional income multiples. Rather than moving between fixed rate schemes every few years, contractors may make longer term commitments to single lenders via the greater use of lifetime tracker mortgages.

Harris told us:

"The trick will be to ensure that the choice at outset is the correct one. For contractors we've always seen the value in offset mortgages and increasingly these will come into their own. At what are expected to be relatively low interest rates over the next few years, these tracker loans could represent fantastic value and come with the added feature that freelancers can reduce the sum on which interest is payable by virtue of the offsetting of credit balances such as tax money, rainy day funds and ISA investments."

If you are looking at taking out a mortgage in 2010, it really is not doom and gloom out there. One thing we would suggest is that you always seek help from a contractor specialist, who has developed strong relationships with lenders who understand how contractors work.

Contractor mortgage help

Tony Harris is MD of ContractorFinancials, an IFA specialising in financial solutions for contractors and freelancers. We have worked with Tony's team for over ten years and have recommended his services to many hundreds of contractors over that time. To speak to an experienced mortgage adviser, simply complete our contractor mortgage enquiry form.