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Interest rate rises could hit contractors hard

Experts are recommending that those who work for themselves and want to get their feet on the property ladder should consider applying for a mortgage sooner than later. Those who want to re-mortgage in the near future are also being urged to act sooner rather than later in order to take advantage of preferential rates […]

By Alex Graham on 28 Jul 2015
Read time: 2 minutes

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Experts are recommending that those who work for themselves and want to get their feet on the property ladder should consider applying for a mortgage sooner than later. Those who want to re-mortgage in the near future are also being urged to act sooner rather than later in order to take advantage of preferential rates which are available now, ahead of potential interest rate rises which have been predicted to come into place at the beginning of 2016.

Contractors who are planning to change the arrangements for their mortgage, either by securing a new one or altering their existing arrangements, should consider speaking to a specialist soon. Many mortgage advisers are not familiar with the way contractors work, meaning that they are not able to provide the kind of information and guidance. Given the time that it can take to secure a mortgage offer, especially for contractors where the process can take a little longer, and during a period where there are likely to be a significant number of additional applications as people try to avoid the rates rise.

Those on variable rate mortgages have also been advised to seek out a new deal in order to minimise the chances that their repayments will rise significantly, especially considering that a 2 per cent rise could add £467 a month to the repayments on a standard £280,000 mortgage.

The lowering of the base rate back in 2009 was an unprecedented move and one which has set a precedent for abnormally low-interest rates. Many economists believe that our idea of a ‘normal’ base rate should be redefined, saying that a base rate of around 2.5 per cent is a good sign of a healthy economy, so we should be striving to achieve that.

Mark Carney, the Governor of the Bank of England, has hinted that arise to this level will be gradual, with many predicting that we could be seeing a 2.5 per cent rate in 2018, but mortgage affordability criteria are unlikely to change at any point soon. This means that any rate rise will make an applicant’s lifestyle and spending commitments even more important when deciding whether they will be able to afford their repayments long term.

With markets likely to react a long time before any rates are actually confirmed, contractors are being urged to act as soon as they can in order to benefit from the current availability of long-term, low interest, fixed-rate mortgages which could dry up in the coming months.

If you work for yourself and want to know more about how to keep your finances in order, then using a specialist contractor accountant is an ideal way to get great advice and support to make a success of your business. To speak to one of our friendly team and get some advice on how you could save money, call us on 01253 362062 or email us at contractoradvice@nixonwilliams.com.

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