As confidently predicted by our very own contractor mortgage consultants in their base rate predictions published on Tuesday, this lunchtime the Bank of England again kept the base rate at 0.5%.

The Mortgage Market Review (MMR) has been in the spotlight again this month with the news that the framework will be published by the regulator in autumn this year with implementation to happen in 2012.

We are aware that many Contractors are concerned that the proposed regulations could make it even tougher for contractors to secure competitive mortgage borrowing. This concern was particularly highlighted with some lenders that previously offered contractor mortgages pulling out of the market as a consequence of what was proposed in the MMR.

We would like to stress that there are still various competitive lending options available for contractors.

CMME work tirelessly on behalf of contractors, we work hard to educate the lenders on how contractors are paid. CMME have secured mortgage borrowing for thousands of Contractors and the lenders that we work with now have a very clear picture that contractors are on the whole are very low risk when it comes to mortgage borrowing.

We will continue to communicate with all lenders and looking forward we hope that the landscape will change and more lenders will revisit some of the decisions they have made recently.

The Mortgage Industry has been concerned about the impact of the proposed regulation for some considerable time.

Satvinder Singh Business Development Director at Contractor Mortgages Made Easy stated that:

“My thoughts regarding the MMR have always been it is a good thing, my concern was always, will decisions be rushed through or will proper consultation take place. To be fair to the regulator they have invited the industry for feedback and changed some of their original thinking. Nobody likes change but it was inevitable and now that everyone is fully considering the impact on consumer detriment I’m confident all market participants will benefit from the resulting changes.”

Tim Drayson, an economist at Legal & General Investment Management has estimated that 90% of the mortgages out there today are variable mortgages, this could also apply to contractor mortgages. He said: “90% of borrowers must be on variable rates because we have not seen the remortgage levels necessary for it to be otherwise.”

Drayson adds: “The markets now expect four rate hikes over this year and next. We don’t feel the economy can cope with this high a rise and do not believe the Monetary Policy Committee will go this far.”

The Financial Services Authority’s (FSA) latest figures estimated that 58% of borrowers were on a variable rate mortgage. He said this discrepancy can be attributed to the amount of borrowers defaulting to a variable rate after the fixed term has ended.

This could be perceived as added pressure on the Monetary Policy Committee (MPC) to keep the base rate at 0.5% tomorrow. If the figures and the assumptions made are accurate, this would be a huge incentive to keep the base rate low. Any rise in Interest Rates would see a greater than expected strain in the finances of borrowers of contractor mortgages.

Author Bio: Associate Director at Contractor Mortgages Made Easy

Category: Finances
Keywords: MMR, mortgage, contractor, mortgages