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Its a prime time for contractors to remortgage off their SVR

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June 24th, 2016 19:23pm


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We know that homeowners remortgage for many reasons. They may want to:
save money switching to a new introductory offer;
release equity for home improvements, travel or major life event;
reduce the term of their mortgage with a new deal.
But are enough contractors using the opportunities to get a new fixed rate deal? With the average switcher saving
over 2,000 a year*, remortgaging is a smart move. Or not, as the case may be.
One reason for this saving is that fixed-rate mortgages have plummeted to record lows. Contractors looking to
remortgage will find that now is an optimal time to look for a new home loan.
You only need visit our best buy table to see the record low mortgage rates on offer. While the base rate stays low,
these rates will continue.
So why arent more contractors taking advantage of them?

Do contractors understand how mortgage-worthy they are?


One thing we do know about contractors is that theyre savvy with their cash. Or at least theyre tuned into their
income and expenditure from their business perceptive.
But does that acute financial awareness overflow to their domestic circumstances?
If the number of UK homeowners settling for their lenders SVR rate is a yardstick, perhaps not.
*Legal & General Mortgage Clubs June 2016 update makes for interesting reading.
Almost 2 million UK homeowners have settled for their mortgage providers variable rate. Based on their figures, if
they switched to new 2-year fixed deal, theyd save over 170/pcm.
By comparison, that means one in six homeowners could save 2,062.20 a year. Just by remortgaging onto better
mortgage rates!

Myths, motives and contractor mortgage affordability: the facts


I think that one aspect contractors often overlook is their mortgage affordability. High Street lenders havent helped.
Despite earning a considerable amount more than their permie peers, banks often reject contractors.
But your friendly bank or building society isnt only to blame. Austerity, credit crunch, tax relief and responsible
lending guidelines have all muddied the water.
Its understandable then that limited company contractors dont know where they stand.
Does their self-doubt stem from trouble they had securing a mortgage loan in the first place?

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Maybe remortgaging takes second place to running their business? Thats understandable, too. Dabbling in their
accounts, marketing and pitching their business, actually carrying out their contract. It all takes time.
Juggling so many balls, they never get chance to see if theyd be better off remortgaging.
Maybe theres an even simpler reason contractors dont look for better mortgage deals. They dont know they can.
But nothing could be further from the truth; contractor-friendly mortgage lenders want their business.

Benefits of remortgaging for contractors


Switching before a lenders introductory rate expires can save contractors thousands of pounds. Or it could cut
down the length of their mortgage term, depending on their priority.
Lets imagine youre a limited company contractor happy paying your current mortgage payments. Then imagine
that we secured you a much more competitive deal using your day rate.
Youd then have a choice; you could start:
repaying your new monthly payments at the new rate and pocket the saving;
continue paying what you were ie overpaying and decimate the term of your mortgage.
But there are other indirect benefits, too

Using remortgaging finance to pay your mortgage off quicker


Remortgaging could be a great way to cut down the term of a mortgage. How? Imagine I got you a better deal on
your mortgage than youve got now. Wouldnt that be great?
Of course it would. But I say could be for a reason. If youre on a lenders variable rate, I may not be able to
improve on the rate youre paying now.
A little bit more about that just below. But just for now, imagine I could and that it makes sense for you to switch.

How much contractors can save by remortgaging


Your current mortgage payment is 670/pcm and youre comfortable paying that amount. The new deal I get you
comes with a monthly repayment of 500/pcm. Youre 170 a month better off without lifting a finger other than to
make a couple of calls.
Now you can pocket that extra cash. Invest it, put it aside for a life event or just enjoy life a little more. Its your cash
to spend whichever way you choose.
Or you can continue paying the 670 that you did on your previous lenders variable rate. The effect of opting for the
latter is this. Over a year, youre paying 2,060 off the mortgage that youre under no obligation to.
Now, as a high-earning contractor, you may dismiss 2,060 as not worth the hassle. You earn that in a week, so
why bother?
Well, heres the beauty of overpaying even just a little on your mortgage.
The interest you pay on any balance the lender calculates daily. So when you drop to a lenders SVR, interest
accounts for the bulk of your mortgage payment.

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The more you pay off the balance, the less the lender has to charge interest upon.
Moreover, this has a compound effect year on year. Yes, you might only be paying off an unobligated 2,060 a year,
but the effect of the term is considerable.
You can knock years off your mortgage term by overpaying in this way.
Or you can use a new lower interest rate to free up more cash each month for other investment opportunities, like
buy-to-let or ISAs.

How the low BoE base rate can affect your repayment
The low base rate on offer from the Bank of England to the UKs mortgage lenders extends the opportunity.
Today, lenders can make the rates they offer on new mortgages lower than ever. Its so tempting that you should at
least consider remortgaging your existing property.
But Ill just touch on the could be I mentioned above. If youre on a life-time tracker mortgage, you may already be
repaying at a fantastic rate.
Another stinger that could derail you is legal fees. There is an official paper trail to follow when remortgaging. You
must remove your current lenders interest in your property and register the new one.
But again, for those apathetic about switching, legalities are little more than an excuse. Most of the remortgages we
offer include a free legal package. If thats your argument for not switching, its moot.
But, yes: you should always weigh up the pros and cons of switching your mortgage deal. And thats why were here.
One call and we can tell you whether we can improve on your existing interest rate.
Well also let you know how much it will cost you to wrap up your existing mortgage, including fees. Well never
recommend that you remortgage if youre going to be out of pocket.
And, yes; it may well be that youre on a great tracker rate with your current lender. Thats awesome. Again,
remortgaging may not be the right thing for you if thats so.
But if not, youre in a minority whove taken advantage of lenders special offers. As Legal & Generals figures imply,
theres a huge percentage of the UK yet to do so.

Remortgaging isnt it too much like hard work?


There are two types of contractor Im appealing to here. One is the contractor whose mortgage is a legacy from their
days as an employee.
The other is the contractor who was just thankful for getting a mortgage in the first place. Now theyve got one, they
dont want to rock the boat.
Theyll live with their SVR, no matter what. Even if their contract rates increased since taking out their mortgage,
they wont budge.
Heres why they should reconsider their position.
Austerity has changed mortgage lenders profiles of an ideal mortgage applicant. Thats why you hear of mortgage
prisoners. They tend to be once creditworthy homeowners who bought at the housing boom peak.
Since the credit crunch, theyve become somewhat uncreditworthy. Their mortgage is struggling to get into positive

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equity.
In truth, thats not the typical profile of a contractor.
But mortgage prisoners who do fit the contractor profile are those with interest-only mortgages.
Getting the mortgage in the first place was simple enough. But with no clear, credible repayment strategy in place,
theyre trapped. But theres brighter news on the horizon.
Several lenders have recently relaxed their criteria towards interest only mortgages. Leeds Building Society is a
prime example of a contractor-friendly lender to do so.
Heres how it works in this instance.
A contractor can use the sale of the mortgaged property as their repayment strategy. For it to qualify, they must have
at least 50% equity in their home today. Then at the end of the term, they must show a clear 150,000 equity in the
property.

Why are mortgages harder to get today?


Lenders introduced responsible lending guidelines after the credit crunch. Since then, one sector of UK labour has
risen above all others: the self-employed.
At one point, it was the rising volume of self employed that supported the entire labour force. Amongst that
subsection was and is the number of limited company contractors.
Contracting soared, driven by the short-term need for:
IT specialists;
homegrown Oil and Gas supplies;
continual and brutal NHS cutbacks in staff;
businesses in need of specialist consultants.
Its taken mortgage lenders a long time to recognise this trend.

There are more contractor-friendly lenders today than ever


Only one of the Big Four assesses a contractors mortgage affordability using their contract. But other smaller
lenders have seen the opportunity and pounced.
This is where contractors can take advantage of remortgaging the most. In the past, youve struggled to make
anyone take your contract rate seriously.
Today lenders will listen, addressing each application on merit.
Not that youll find these eager ears on the High Street. Mortgage lending to contractors remains a specialist niche.
But thats where we come in.

A specialist mortgage broker can show underwriters your true worth


We can make your day rate look appealing to a contractor-friendly mortgage lender. We can turn the way you do
business into an irresistible prospect to our underwriters.

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We can use your contract rate to make remortgaging to better rate a real possibility. Two things make this work:
relationships weve built with contractor-compliant underwriters gives us a direct line to them;
the way we package your application, highlighting your greatest asset: your contract rate.
All too often, in branch advisors can see how much you earn. But your accounts show optimised tax breaks,
meaning you draw low salary and dividends. Its this reduced figure in-branch staff use as the base of your
affordability.
These in branch IFAs can see your potential. But the lending model they use means they cant get at it.
The underwriters with whom weve negotiated terms see your true potential.
They use your contract rate and retained profits to calculate your affordability. You wont get this access at the vast
majority of High Street lenders!

Your remortgage bucket list: become prepared


If the BoE was to increase their base rate, thousands of borrowers would be stuck on their lenders SVR.
At this minute, its unlikely they will. But that doesnt mean you shouldnt prepare for it. If for nothing else than to get
a better rate today.
Think of it like this. What if your client asked you if you wanted a pay rise for nothing. What would you say to that?
In real terms, a remortgage could act as a pay rise for you.
As I said at the start, contractors are in a great place to be savvy with their income. But that doesnt stop on the
commercial front.
Use your day rate to secure a lower mortgage interest rate. If youre just curious, see how much you could borrow
with our mortgage calculator.
Dont mess around with the High Street. Use a broker who knows how to make the best of your contract rate. You
could start saving before the months out.
Yep we can get your remortgage sorted in less than a month from now. Lenders are dying for your business if you:
have paid your current mortgage on time and have good credit;
have a sustainable contract or industry in which you contract;
have an existing contract or can get the promise of a continuation;
can prove your contracting income over the last three months.
Conditions have primed the market for remortgage deals for contractors. Its a far cry from the times when you
couldnt get lenders to see your contract rates potential. We do. Isnt it about time you did, too?
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