The return of the mortgage for life
Published on 19th November 2009
In a post 'crunch' world Lenders are much choosier as to who they lend to and are increasingly looking at lifestyle rather than traditional income multiples. Against this backdrop we could be returning to the situation in the 70's and 80's where people considered their house financing 'a mortgage for life'.
Our current savvy generations of Contractor clients have grown used to the idea of the short term mortgage scheme whereby we secure you a rate for 2-3 years at most and you then remortgage onto another competitive scheme elsewhere. However, with lending becoming stricter we may be moving back towards the 'mortgage for life' scenario that was prevalent in the 70's and 80's. Lenders are becoming increasingly concerned with the financial impact of specific lifestyles rather than rely on rigid income multiples and have taken to looking at bank statements to gauge your spending habits and lifestyle choices before assessing your suitability for a mortgage.
In order to get to grips with the problem of what has been deemed to be irresponsible lending, the FSA reviewed the mortgage market earlier this year and have urged mortgage companies to be far more stringent with income checks. They are also likely to insist that lenders should have less scope to charge interest on arrears.
However, the law of unintended consequences means that a headline grabbing positive could turn into a long term negative as lenders become far more risk averse as to whom they lend to in the first place and it will become far harder to refinance periodically. We see increasing value in Contractors making long term commitments to the lenders they choose and increasing use life time tracker mortgages that we will not need to be remortgaging every 2-3 years.
The trick will be to ensure that the choice at outset is the correct one. For Contractors we've always seen the value in offset mortgages and increasingly these will come into their own. At what are expected to be relatively low interest rates over the next few years, these tracker loans could represent fantastic value in addition to the ability for Freelancers to reduce the sum on which interest is payable by virtue of the offsetting of credit balances such as tax money, rainy day funds and ISAs.
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