Tougher mortgage assessments unwelcome for first-time buyers and those remortgaging – iNews

March 7, 2022 By admin

Homeowners are being warned they might find it harder to remortgage over the coming months as lenders raise rates and impose tougher income assessments to combat the threat of rising inflation.
Both HSBC and Halifax confirmed their affordability criteria is under review this week while Moneyfacts data shows mortgage rates are ticking up, albeit slowly and from a very low base. This month the average two-year fixed rate was 2.4 per cent, up from 2.37 per cent in December 2021 but still lower than January 2021’s average rate of 2.5 per cent.
It marks a turning of the tide on mortgage availability, which exploded as the Bank of England cut the base rate to 0.1 per cent and the Government brought in the stamp duty holiday to boost demand.
Now mortgage lenders are concerned that rampant inflation and rising energy and fuel costs will affect household finances, making it harder for some borrowers to afford their mortgage repayments.
“Families are facing a steep rise in energy bills and an increase in the general cost of living. This, teamed with the recent rise in interest rates to 0.25 per cent, is leading many lenders to take a more cautious approach when reviewing applications,” Miles Robinson, head of mortgages at online mortgage broker Trussle, told i.
“In such an uncertain market and in the face of the ongoing pandemic, it is essential for not only lenders, but consumers to act with caution and explore all options available with an independent adviser before committing to significant changes in their finances.”
While Halifax and HSBC represent just two of many lenders, the impact of them tightening their rules could hit millions of Britons.
Analysis of trade body UK Finance data by i shows HSBC and Lloyds Banking Group, which owns Halifax, together account for one in four mortgages in Britain, with the most recent figures showing that in 2020 the two lenders held a 27 per cent market share.
Rachel Springall, a finance expert at the financial comparison firm Moneyfacts, warned that any significant tightening of their criteria could make it harder for lower-income households to remortgage.
“Lenders can change their underwriting criteria if they are concerned about affordability and if a prominent brand decides to do this, other lenders could follow suit,” she said.
“Would-be buyers may see their outgoings rise this year and if their wages fail to rise as well, they may have to dip into their savings to cover unexpected costs.”
Borrowers looking to remortgage could become “stuck on a deal” if affordability rules tighten, she warned. “That could be particularly costly for those falling off a fixed rate to a more expensive revert rate.
“If borrowers looking for a deal are concerned about passing affordability tests, it’s always wise to go through an independent broker who can assess the market and offer insight.”
Ms Springall also said tighter criteria could mean would-be first-time buyers see their aspirations of homeownership deflated.
“If affordability rules tighten, they may have to wait longer to meet new criteria,” she said.
David Hollingworth of mortgage broker L&C Mortgages explained that mortgage lenders will often use Office for National Statistics data as part of the engine for their affordability calculator.
“As higher living costs begin to bite so it follows that it could have an impact on how much lenders are prepared to lend,” he said.
“Lower earners are those most likely to feel the pinch as their disposable income is hit by higher energy bills and other costs. It won’t be welcome news for first-time buyers who are likely to be stretching their borrowing amount as much as possible in the face of high house prices. Any pulling back could impact their chance to get on the ladder.”
Last year the typical monthly mortgage payment was just under £900 a month compared with spending on gas and electricity of £112 a month, according to L&C’s analysis of 2021 prices.
Energy is expected to rise by 50 per cent this year as higher wholesale prices feed through to customers’ energy bills.
But Mr Hollingworth argues that for those who can, remortgaging could wipe out the effect of higher bills by bringing monthly mortgage payments down.
Mortgage rates are already on the rise as lenders have started to pass the base rate increase through to Standard Variable Rate (SVR) customers.
Remortgaging from an average SVR of 3.91 per cent to a leading fixed rate of 1.36 per cent could save customers over £2,200 a year on a typical mortgage.
Moving on to a rate that is just 0.65 per cent lower could offset the anticipated £600 annual increase in energy bills.
“With more interest rate rises on the cards this year in the face of high inflation, borrowers can not only make savings now but also fix their mortgage rate to avoid further increases in future,” said Mr Hollingworth.
i has teamed up with award-winning mortgage advisers L&C Mortgages to offer readers an easy way to find the best deal.
Whether you’re buying a home, remortgaging to a new deal or looking for help with a buy-to-let their advice is fee free and covers 1,000s of deals from over 90 lenders.
Use our mortgage calculator for free to work out how much you can borrow and compare the best mortgage rates.
If you find a deal you like the look of, you can start your application online or over the phone.
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