Access to prime remortgage products could soon be in short supply, with UK inflation more than doubling in April, according to figures from the Office for National Statistics this week, rising to 1.5% month on month.
Such an increase, up from 0.7% the month before, undoubtedly signals a more buoyant economy in the UK, as lockdown restrictions continue to ease.
While this certainly lends encouragement to the financial market’s continued recovery, homeowners should beware that the historically low mortgage rates on offer presently are unlikely to remain so for much longer.
“Over the past 12 months we have seen interest rates plummet, as the Bank of England base rate fell to an unprecedented low” says Andy McBride, Business Development Director at Professional Contractor Mortgages. “We recently passed the anniversary of the Base Rate being reduced to its present level of 0.1%, reduced from an already record low of 0.75% in March of 2020.”
“Those homeowners with variable rate mortgages, notably Base Rate Tracker mortgages, have enjoyed mortgage payments lower than they could ever have wished for. Many have taken the opportunity to keep payments the same, and effectively overpay, reducing borrowing levels and taking years off the overall mortgage term. However, with recent news around inflation, it is unlikely that these rates will be on offer for much longer, as the cost-of-living rises the cost of borrowing usually follows.”
Inflation has increased at a faster rate than most expected, with the government setting a target of 2% for inflation for 2021 as we adjust to a new normal. While a small, steady increase is usually good news for the economy, a higher-than-expected increase short term increase is not as it is highly likely wages will fall behind.
“Traditionally, a slow, gradual increase in inflation is good, as it means people generally respond to the cost of living increasing slightly by spending more, in turn generating the ability for many employers to increase wages accordingly” adds McBride.
“In the standard lending market, this can signal bad news, as mortgage rates begin to slowly rise, without borrowers having the ability to quickly take advantage and lock into low rates, as incomes fail to keep pace.”
Thankfully, however, contractors and freelancers appear to be in pole position to be able to make the commitment and lock in a competitive scheme.
“With IR35 we have seen a steady increase in contract rates in light of the increased use of PAYE contracts, to outweigh what used to be the advantage of using a Limited Company.”
“Not for the first time of late, it seems that contractors are somewhat ahead of the curve in this respect, with their increase in income having come prior to inflation rising, meaning that they find themselves at the front of the queue when it comes to the most competitive mortgage rates.”
With over a decade of underlying experience in the contractor mortgage market, Cleerly have a team of experts on hand to help take advantage of what is undoubtedly a positive mortgage market for contractors and the self-employed.