The Bank of England has set a target inflation rate of 2%. However, this may prove to be challenging to achieve given the current state of inflation. In February, inflation stood at 6.2%, whereas in March, it grew to 7% (highest in 30 years). In April, it came in at a jaw-dropping 9%. These high levels of inflation are likely to continue, making it difficult for the chancellor to meet his target.
Whereas, the average cost of a home in the United Kingdom has increased by 9.9% in the last year, according to the latest figures from the Office for National Statistics (ONS). This means that the average property value is now £297,524.
This could have implications for the economy as a whole, as well as for individual businesses and households. Contractors, in particular, may find themselves struggling to keep up with rising prices.
Do contractors have to pay more for their mortgage due to high inflation?
The impact of inflation on mortgage repayments is often underestimated. As the cost of living increases, so does the amount of money that needs to be set aside each month to meet mortgage repayments. For self-employed contractors, this can be a particularly difficult problem to overcome.
While employed workers receive regular pay rises in line with inflation, contractors often have to rely on their own negotiating skills to ensure that their fees keep pace with the rising cost of living.
As a result, it is not uncommon for self-employed contractors to find themselves struggling to keep up with their mortgage repayments in periods of high inflation.
In May of this year, Halifax more than doubled its interest rates on buy-to-let mortgages, increasing them from 2.99% to 6.19%. This came as a shock to many contractors, who had been expecting rates to rise but not by so much. However, experts are now saying that despite the increased rate, contractors should consider remortgaging anyway.
By remortgaging now, contractors will be able to lock in a low rate for the next few years, before rates start to increase again. In the long run, this will save them money.
To sum up:
Contractors should consider using a specialist broker when securing their mortgage. These brokers have access to exclusive deals that aren't available to the general public, and they can often negotiate a better rate on behalf of their clients. By taking these steps, contractors can protect themselves from the worst effects of inflation.
John Yerou (CEO of Freelancer Financials) writes for ContractorUK “More now than ever, lenders are addressing applications on a case-by-case basis.
Please be aware contractors, if you approach a High Street lender on your own, they will draw on what they immediately know -- the type of business that their underwriters are approving. Should they deem your income as ‘non-standard’ compared to, say, permies or straight-up self-employed people (operating as sole traders), there’s a real risk that they’ll class you as HIGH RISK.”
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