Posted by John Yerou
on January 13th, 2011 06:00am in
Last Updated on April 10th, 2018 09:21am.
Interest Rates have to go up at some point
Property owners in the UK have lost reality when it comes to interest rates on mortgage deals, according to a new study by unbiased.co.uk.
The research showed that the average British homeowner would only apply for a fixed rate mortgage if it was at 3.3%. This view is unrealistic the website notes as is that of the 16.6% of people who would not switch from a tracker mortgage unless they could secure a fixed rate deal at 2%.
The general public have become so used to a Bank of England base rate of 0.5% that they’ve lost touch with reality, the website’s chief executive said. The current low-interest environment has clouded people’s judgement and distorted their ideas of what a reasonable mortgage rate actually is.
Contractors securing mortgages on their contract rate alone
Contractors securing mortgages based on their contract rates also need to be diligent, especially if their rate drops and the mortgage becomes unaffordable in the future. A contractor is able to secure a mortgage based on 5 times the annual gross contractor earnings calculated over 48 weeks. Therefore a contractor on a daily rate of £500 could potentially borrow £600k. This is based on being able to command and sustain a future contract rate of £500 and also relies on the honesty of the contractor applying for a mortgage.
Lenders want to avoid the situation where a contractor after 6 months of applying for a contractor mortgage, struggles to keep up payments as a consequence of their contract rate dropping. So it is important to be realistic and evaluate what you can potentially borrow on your contract rate.
Mortgage Fraud down
Meanwhile, mortgage fraud in the UK is on the decline, reports KPMG. In the second half of 2010, just 13 cases were reported, a drop of 8 from the corresponding period the previous year. Value wise, the total dropped from £96 million to slightly under £12.5 million. Despite this, last year the UK faced the most ever fraud cases although a large proportion of these targeted public funds.
KPMG suggested that the drop in mortgage fraud could be accounted for because financial institutions are now dealing directly with large scale organised fraud.
The biggest mortgage fraud threat comes from professional criminals, who instigated £709 million of the UK’s total fraud in 2010.
Author: John Yerou
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.