contractor borrowing

Tremors: seismic shifts in contractor borrowing rumble underfoot

The global economic crises, credit crunch and recession(s). Remember those and how banks drew up the drawbridges to mortgages?

Well, according to the The Guardian, Britain is facing the highest risk of a recession since the financial crisis and needs urgent plans to combat the next downturn.

That could have severe repercussions for the housing market, affecting all homebuyers. But for contractors, the goalposts could move even further in the Spring Budget.

Can we do anything about recession if it comes?

Even if we do enter recession, the backdrop isn’t the same as 2007. The Bank of England had an arsenal of tools to combat recession at its disposal. Many of those weapons they’ve since deployed, with few viable alternatives replenishing the armoury.

We also have the prospect of a hard Brexit looming. We’re already feeling the impact of economic uncertainty, there. GBP is as low as I can remember. Great for export, but few contractors I know are in the export business.

Plus, there’s a real argument that the UK hasn’t fully recovered from the last recession.

You don’t have to look too far for evidence. Just walk down your local High Street and see how many charity shops are doing a booming trade.

But if you do want harder facts, The Guardian evidences those, too:

Low-income Britons ‘more vulnerable to recession than in 2008’

Low-income Britons ‘more vulnerable to recession than in 2008’

In direct relation to contracting, the landscape is also different. Back in 2008, we didn’t have the prospect of IR35 handing the responsibility of pay status to the client en masse.

Come April 2020, UK contractors could be looking out across an alien economic climate. And given that we’re all entering uncharted territory, pointers will be few and far between.

contractor mortgages

What does that mean for mortgage lending in the coming years?

On 2nd July, IHS Markit and CIPs published their latest News Release on the crisis in construction.

Its headline: Construction output falls at the steepest rate since April 2009

The key findings of the report:

  • Business activity declines for second month running in June;
  • Sharpest drop in house building for three years;
  • New orders shrink as political uncertainty hits client confidence.

The report highlights a worrying statistic for government, GDP, housing, all of us:

“business activity and incoming new work [are] both falling at the fastest pace for just over 10 years.”

Are lenders fortifying their position?

In normal circumstances, you’d expect lenders to be doing all they can to encourage buying. Dropping interest rates, bending over backwards to entice buyers from all market sectors, etc.

In reality, some are going off on a separate tangent.

Think about the recent growth in adverts you’ve seen for “overpayment calculators”. Santander with their Ant and Dec campaign is the most prolific and aggressive. But other lenders are enticing us to “take years off your mortgage”, too.

If you look beyond that marketing angle, you might get a different perspective.

Growth versus consolidation: which will win?

Could it be that banks are trying to recoup as much money from UK borrowers as they can before a hard Brexit?

Lenders don’t want Brexit to compromise their integrity like the 2007 economic crisis did. They have learned their lesson and are getting prepared.

Many of the elements that shaped the mortgage landscape during the Credit Crunch remain in place. Some lenders could be battening down the hatches behind the scenes.

But that won’t stop the new government putting pressure on lenders if the construction industry flatlines like it did in 2009.

Back then, only borrowers with the most pristine credit history and sizeable deposits could get mortgages. What’s to say lenders won’t adopt the same ‘responsible guidelines’ verbatim again?

Will contractor mortgages even exist after the Spring Budget?

Will these factors make the mortgage market retract like it did 10 years ago? No one can say for sure.

But many of the individual factors that plagued housing and construction during the credit crunch are back in play.

The next 6-8 months will prove crucial to how the mortgage market looks for contractors. Right now, existing contractor-friendly criteria remain in place. For how long, we can’t be sure.

If you’re considering getting a mortgage in the near future, also consider the possible consequences of waiting. No one can even say for sure that there’ll be a ‘market’ for contractor mortgages post-April 2020.

Right now, you can still borrow more using your contract rate than an employee doing the same job. Will we be able to guarantee that if the private sector goes PAYE on us next year? Probably not.

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