This is our take on what is currently happening in the mortgage market. Our views are often cited in several national publications, including; BBC News, The Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of key trade publications, so this should keep you ahead of the curve. If you have any questions on any of these stories, or would like further information, please do not hesitate to get in touch.

  • IR35 causing mortgage issues for private contractors
  • Lenders continue to increase flexibility
  • Low interest rate environment leading to increase in wealthier borrowers

IR35 causing mortgage issues for private contractors

It was thought that this change in legislation would be deferred, however it came into practice from the 6th of April. In short, the UK’s IR35 legislation ensures that contractors pay the same Tax and National Insurance contributions as an equivalent employee. These new changes are for private sector contractors, to bring them in line with the public sector where the reform was implemented in 2017. So, while this has been a long time coming for contractors, it creates issues for them from a mortgage perspective.

  • Firstly, contractors used to be able to get their income based on a day rate, for instance: £500 a day x 5 days x 46 weeks so their potential borrowing capacity could be dramatically curtailed and may present a difficulty to contractors who are remortgaging.
  • Moreover, given these changes, now many day rate contractors on advice from accountants have had to move to being paid through umbrella companies. Put simply, lenders do not like change and some treat borrowers being paid through umbrella companies similarly to the self-employed and require 2 years of P60s to justify their income. Also, umbrella companies take a cut of the fees taken to pay for employers NI and costs which reduces affordability compared to previous levels.
  • We are seeing an increasing number of enquiries who have only gone into this structure from early this year. They are approaching us, firstly all hoping they would have greater borrowing power then they do, and also finding they haven’t been able to get a mortgage at all! It should be noted that there are only a handful of lenders willing to accept new umbrella company workers.

Lenders continue to increase flexibility

The trend for lenders to increase the flexibility of their criteria is continuing, and we have seen two significant changes of late from mainstream lenders. Firstly, TSB are making changes to their early repayment charges (ERCs) for customers making overpayments or porting <90% of the balance of their mortgage, with those on a fixed rate, and within the last three months of their product end date, no longer incurring an ERC if they make overpayments over the 10% threshold and those porting less than 90% of their mortgage balance will have the ERC waved in its entirety. HSBC have changed the 4.75x multiple salary threshold criteria for applications with an LTV of less than 85% from £50k to £30k meaning a greater number of potential and existing borrowers will now be eligible for a mortgage at higher income multiples.

  • We very much welcome lenders changes when they make borrowing more flexible as this ultimately benefits our customers. Moreover, the HSBC change to LTI in particular will have a really positive impact for borrowers looking to purchase since the large increase in prices over the last few months as dramatically increases potentially affordability.
  • Changes to ERCs are absolutely essential if more borrowers are to move to longer fixed term rates.

Low interest rate environment leading to increase in wealthier borrowers

In the last few months, we have seen an increase in the number of wealthy borrowers enquiring about mortgages, both from a purchase and remortgage perspective. A number of these clients do not need a mortgage and could easily proceed to purchase comfortably in cash, but choose to take a mortgage given the incredibly low interest rate environment, especially at lower LTVs. Often this is on advice of wealth managers or simply because they have seen the rates available in the market.

  • We expect this trend to continue, until interest rates change dramatically, or we see a significant fall in the stock market. Ultimately, if you are paying 1.5% over 5 years to borrow money, and your wealth manager has consistently got you 7%, many think the risk is one worth taking to draw money out of your home.
  • Although a mortgage is debt, it is also important to think of this as a financial planning tool… the low interest rates on offer to low risk lending propositions, often wealthier buyers, in combination with the high potential returns in the market means wealthier borrowers continue to grow their capital…
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