Remortgaging is trending since Spring Statement 2022 so contractors, get in fast

Lock in fixed rates now! Yes, a bit like everything else, mortgage interest rates have gone up. Despite this, they remain cheap (for the time being) when compared over time.

Numbers don’t lie

But with further increases in the base rate forecast for the next 18 months (up to 1.25% in 2022, followed by 2% in 2023 according to Capital Economics), today's rates won't be around forever, writes John Yerou, CEO of Freelancer Financials.

If you need more of a wake-up call, consider this. Rates have shot up from under 1% to 1.79% in just six months. Perhaps your fixed rate mortgage ends within the next six months? Worse, are you on your lender’s standard variable rate (‘SVR’? If ‘yes’, now is the time take action!

Now you see them…

Back in November 2021, we wrote about how sub-1% mortgages careened to historic (even hysteric!) lows over summer. But these were wiped out in a week with the news of impending Bank of England base rate hikes.

Following Spring Statement 2022, Martin Lewis of Money Saving Expert has drawn a similar comparison. While sub-1% mortgages proliferated in the summer 2021 market, today, the cheapest ANYWHERE is 1.79%.

Even then, without large deposits, impeccable credit and a number of other criteria in your favour, scoring such low deals isn't easy,. And it simply won't happen for every contractor.

Remortgaging and the professional contractor

As a general rule, we approach our clients BEFORE they are due to fall onto their lender's SVR. Remortgaging in a timely manner can help both stave off early repayment fees and, of course, the swingeing exercise of paying through the nose on a lender's variable rate!

But with the certainty of further rises in the BoE base rate, we're asking everyone to look at their existing mortgage now. Even if you're currently on a low fixed rate, switching to a slightly higher rate today could still save you thousands – should the creditable predictions of increasing inflation ring true.

Three steps to the perfect remortgage

Martin Lewis' visibility as a personal finance guru is unmatched. With his prominent advice trending immediately after Spring Statement, homeowners will be surging to remortgage.

Remember though, contractors already have it (unjustly) tough compared to their permie peers. With that in mind, let’s share with you the inside track if you’re a contractor seeking to remortgage effectively and efficiently.

First and foremost, get to grips with your current mortgage

To make an informed decision about a new mortgage, you should have (at least) a grasp of what your current deal encompasses!  You'd be amazed at how many contractors are happy in their oblivion.

These are the key indicators that will help you reach that decision:

• What is my current monthly repayment?
• What do I owe on my mortgage?
• What interest rate do I pay, and is it fixed or variable?
• When does (did!) my SVR/introductory rate end?
• How long do I have left on the mortgage term?
• Are there any fees for ending my current mortgage early?
• What is my home worth, and how much equity do I have against my current loan?

Can I product switch with my existing lender?

The rate at which lenders changed their criteria during the coronavirus pandemic was unprecedented. Over that same period, we saw many contractors switch from limited companies to umbrella companies We even saw a fair few transfer from their PSC to a permanently employed, 9-to-5 client-side position.

This combination has led to many of our contractor clients being disheartened when they've approached their existing lender with the hope of remortgaging to a better rate.

Broadly, there is one huge positive and one huge negative by going to your current lender. The positive is that they have your history at hand, and may look at reducing fees to keep your business. The negative is that you're limiting yourself to that single lender's criteria, and their one range of mortgages!

Our contractor clients who've gone (back) to traditional employment have suffered the most. Often, they had used contract-based underwriting in the past, whereas now not only is this route not available, but with their day rate sacrificed for salary, their effectual borrowing ceiling has crashed compared to what it was or could have been.

So yes contractors; do always check with your existing lender. But do ALSO compare what other lenders will offer you. And to make sure you're comparing apples with apples, use a broker to get those comparisons completely correct!

Brokers to play a larger part than ever

A final piece of advice Money Saving Expert issued (post-Spring Statement) resonates massively with our core ethos. That advice is cued up nicely by the question – ‘Will a mortgage lender recognise what you can truly afford based on your income structure?’

Well, most of us realise that the working world has strayed further than ever from the traditional 9-to-5. The pandemic has brought about this trend sooner; so soon in fact that banks are still playing catch-up.

At the time of writing, many lenders have their own contractor-friendly lending policies. But few (and I do mean just a few), offer those criteria in-branch.

Interestingly, Martin Lewis now goes as far to suggest that all PAYE employees enlist the services of mortgage brokers. We would reiterate that recommendation to all types of contract worker, because whether they are umbrella, PSC or another type of contract worker, their income is still regarded by lenders as special or ‘non-preferred.’

Our final recommendations (includes talking to yourself)

Getting a cheap rate is one thing. But if you struggle to borrow what you know you can really afford in the first place, what's the point? Now more than ever, we recommend that you:

• Take yourself to one side; have a serious chat with yourself about your current mortgage; and
• When you've won that argument (!), enlist a broker to help you secure a mortgage deal that will support your lifestyle and working pattern over the next few potentially turbulent years.

More information on contractor mortgages here.