Contractor Mortgages Contractor Pensions Contractors

In a post 'crunch' world lenders are much choosier as to who they lend to and are increasingly looking at lifestyle rather than traditional income multiples. Against this backdrop we could be returning to the situation in the 70's and 80's where people considered their house financing 'a mortgage for life'.

'Mortgages for life'

Savvy contractors have grown used to the idea of the short term mortgage scheme whereby you secure a rate for 2-3 years at most and you then remortgage onto another competitive scheme elsewhere. However, with lending becoming stricter we may be moving back towards the 'mortgage for life' scenario that was prevalent in the 70's and 80's.

Lenders are becoming ever more concerned with the financial impact of specific lifestyles rather than simply rely on the previous method of using rigid multiples of salary and other income to judge affordability. Increasingly they have taken to looking more closely at bank statements to gauge your spending habits and lifestyle choices before assessing your suitability for a mortgage and in many cases this could mean that remortgaging will become increasingly difficult.

In order to get to grips with the problem of what has been deemed to be irresponsible lending, the FSA is reviewing the mortgage market and has urged mortgage companies to be far more stringent with income checks hence these tighter lending criteria.

The regulators are also likely to insist that lenders should have less scope to charge interest on arrears. However, the law of unintended consequences means that this headline grabbing positive could turn into a long term negative as lenders become far more risk averse as to whom they lend to in the first place.

It could therefore become far harder to refinance periodically in the future and so mortgage advisers are seeing increasing value in contractors making long term commitments to a single lender, with greater use of life time tracker mortgages that will not need to be remortgaged every 2-3 years.

Offset contractor mortgages

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.

More information

Tony Harris is Managing Director of ContractorFinancials, an IFA specialising in financial solutions for contractors and freelancers. To speak to an experienced mortgage adviser, simply complete our contractor mortgage enquiry form.