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Contractors’ Earning Power vs First-Time Buyers: No Contest

Posted by John Yerou on in Mortgage News

golden key floating between man's hands showing opportunityNow and then, housing market stars align to present a surprise opportunity. Such is the case now.

But it’s very much of the moment and this sweet spot won’t last forever.

Brexit fears aside, many other factors could pull these stars out of true. Not least the upcoming General Election.

But right now, there’s a unique opportunity for contractors looking to buy a home!!

Borrower profiles: the less risk, the better!

Contractors’ strong earning power and penchant for saving and investing curries favour with lenders. Their overall tendency to err on the side of caution also displays prudence.

Ahead of the great unknown we face, mortgage lenders are looking to reduce risk. Your borrower profile—combining high income, savings and caution—is a win-win-win for them.

It’s even stronger when you stack these traits up against the competition!

First time buyers account for 52% of all new mortgages. That’s growth in market share of more than 50% since FTBs represented a third in 2015″! And many of those are intergenerational borrowers (borrowing deposits from the bank of mom-and-dad).

Here’s why I think the whole scenario has inherent flaws. Moreover, how contractors could take advantage of this once-in-a-blue-moon opportunity right now.

Inter-generational borrowers: good for business?

In a way, this shift feels a little like self-cert. Inter-generational borrowers are, in effect, borrowing from their future selves. It is entitlement taken to the nth degree. And it’s worrying.

Many existing homeowners are waiting for Brexit results before moving home. So, for now (at least), lenders are running with the surge in first time buyers.

What else can they do? Without first-time buyers, the market would feel more than a tad deflated.

But I ask myself, “if the rest of the mortgage market was more buoyant, would they?”

It’s this simple. The more lines of credit a borrower has, the higher the risk on the part of the lender. And, yes – I’m sure that some parents are gifting the money to their offspring.

But not all of them. For those homebuyers taking equity from parents as a loan, it’s another debt. Eventually, you’ll have to repay your parents’ or grandparents’ loan. The scary part is that, quite often, it’s an unquantifiable debt for the lender involved.

The win-win(-win) for lenders

So, why should banks worry? On paper, first time buyer borrowers meet lending criteria. And the lender is potentially getting double bubble from the transaction:

  • Equity release products from (at least some of) the generous parents and grandparents;
  • New customers by way of the first-time buyers that their folks releasing equity facilitates.

The Bank of Mom and Dad helps GDP, too. More money released from savings and equity, the more in circulation. The more borrowed for mortgages, the greater the amount in the economy’s ‘profit’ column. Everybody’s happy.

So, am I being too cynical? I don’t think so.

Why this is such a good thing for contractors in the here and right now

Those little windfalls of inheritance that have helped past generations pay off lump sums? They’ll be much reduced in the future. You can only spend it once. Spending it now limits inter-generational borrowers’ options in the future.

And lenders aren’t ignorant. They know this. So, what will they think of a contractor with high, sustainable income and even savings?

Oh, yes: lenders will take that, providing the contractor goes through the right channels. I can’t stress that last bit enough: use a contractor-aware broker every time.

It’s making lenders see a contractor’s affordability that’s often the issue. Getting to underwriters who’ve taken off their blinkers is key to a successful application!

The underpinning issue in contractors’ favour: time

The UK landscape is about to change forever, for better or worse. And right now, it’s taking 162 days to sell a home (on average) in England and Wales. 109 days are from putting the house on the market to accepting an offer.

The mortgage going from accepted-to-completion devours the other 53 days. That’s the biggest part of two months! From time of writing, there could be a whole new Government in that time.

What bank wants to wait that long? And we know they don’t want to wait because of another tell-tale sign.

Have you noticed how many lenders are encouraging you to overpay your mortgage?

Ducks in a row before Brexit

Like I say, lenders aren’t ignorant. Ahead of Brexit, they want reduced risk, more money in the kitty and assurity. They don’t want another financial crisis.

If a contractor uses a broker who knows what they’re doing, they can have that guarantee. Most contractor mortgages complete in 3-4 weeks, some even quicker than that.

What lenders won’t welcome that business compared to their other options?

Now might not seem like a great time to buy a home, but:

  • Brexit is looming;
  • Who knows which way the General Election will go;
  • And contract-based underwriting might disappear as we know it after April 2020!!

Many banks are scrapping their contractor employment schemes already. And it was they, primarily the Halifax, that got the contractor mortgage train a-rolling.

Don’t wait until buying a home using your contract rate is not an option. The alternative will be you using your ‘salary’ only. Now that would be a disaster!

Steady Increase in House Prices Prolongs Market Recovery

Posted by John Yerou on in Mortgage News

The housing market has bounced back in a big way – and home prices have increased to keep up with this trend in a major way over the past month.

While this isn’t necessarily good news for anyone looking to secure a home loan, owners looking to sell their homes will indeed be happy to learn that the price of the average home increase by around 2.1 per cent over the past 30 days. This has added around £5,000 to the price of your typical home, leading to an average price of almost £250,000.

Continue reading »Steady Increase in House Prices Prolongs Market Recovery

Halifax Welcomes Non-IT Contractors into its Mortgage Fold

Posted by John Yerou on in Mortgage News

There’s been a ground-breaking shift on the High Street this week as the Halifax welcomed contractors outside the IT sector into its mortgage fold.

Banks and building societies recognising that contractors don’t have to be servicing computer systems to command a livable self-employed wage has been a long time coming.Continue reading »Halifax Welcomes Non-IT Contractors into its Mortgage Fold

“Interest only” mortgages for contractors not the pipe dream they were

Posted by John Yerou on in Featured

Interest-Only-MortgagesThe Council of Mortgage Lenders has reinforced its message that monitoring forecasts and budgets for repaying interest only home loans is the safest way to ensure mortgagees are not left high and dry.

Many banks and building societies pulled out of interest only or ‘endowment’ mortgages at the end of 2012. One reason was the creditworthiness potential customers needed to bring to the table, but weren’t.

The other was the lack of long-term verification that any plans in place would actually produce enough capital to pay off the mortgage at the end of the term.Continue reading »“Interest only” mortgages for contractors not the pipe dream they were

Chancellor’s new Help to Buy scheme strongly criticised by MPs

Posted by John Yerou on in Featured

One of Chancellor Osborne’s newest schemes announced in the Budget specifically designed to support the mortgage lending market has been criticised by MPs.Continue reading »Chancellor’s new Help to Buy scheme strongly criticised by MPs

Lenders To Make First Time Buyer Mortgages More Competitive

Posted by John Yerou on in Mortgage News

There may be some good news for those first time buyers that have grown weary of being tossed table scraps by major home lending providers.

It turns out that first time buyers – especially those that lack the cash on hand to put down weighty deposits – may finally be able to find a relatively affordable mortgage loan, even though they don’t have much in the way of a deposit amount. This is because both Halifax and First Direct recently announced that interest rates on lending products ideal for low-deposit first time buyers were being slashed.

Continue reading »Lenders To Make First Time Buyer Mortgages More Competitive

Beware of Too-Good-To-Be-True Deals on Low Rate Mortgages

Posted by John Yerou on in Featured

That attractive fixed rate mortgage loan might look like a fantastic deal, especially in the wake of ultra-low interest rates, but beware the bait and switch. Continue reading »Beware of Too-Good-To-Be-True Deals on Low Rate Mortgages

Human Rights May Get Non-EU Residents Help-To-Buy Mortgages

Posted by John Yerou on in Mortgage News

World FlagsThe EU’s human rights rules could have a knock on effect to UK housing. Under them, it’s likely that the Help-to-Buy scheme will help foreign EU and non-EU residents buy a home in the UK.

The Help-to-Buy scheme in itself is the shot in the arm the depressed housing market needs. Through it, lenders would offer mortgages subsidised by the Government.

For one, it would make the housing market more accessible to first time buyers. It would also help younger/lower-income Brits with 5% deposits buy a home.

But, under EU rules, the UK can’t confine this type of mortgage lending to its indigenous citizens. People both inside and outside the Eurozone will have equal access to Help-to-Buy.

Continue reading »Human Rights May Get Non-EU Residents Help-To-Buy Mortgages

Contractors shouldn’t ignore protection insurance

Posted by John Yerou on in Mortgage News

Permanent Health Insurance Vs MPPI

The scandal over mis-sold PPI has meant that a lot of self employed contractors  have refused to take out income protection on their mortgage payments because they do not understand that it is a different product.

Continue reading »Contractors shouldn’t ignore protection insurance

Homeowners Face “Shocking” Rise in SVRs from Major Lenders

Posted by John Yerou on in Mortgage News

These are testing times for freelancers and contractors coming to the end of their discounted rate mortgage period. With a number of high street lenders raising their standard variable rates, they are feeling justifiably nervous about their repayments.

Continue reading »Homeowners Face “Shocking” Rise in SVRs from Major Lenders

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