Homebuyers face the biggest pressure on home loans in a decade


Borrowers faced with rising household bills and falling wages may face difficulties when applying for a home loan.

Indeed, the banks have launched the biggest crackdown on mortgage checks in a decade.

Mortgage brokers say rising energy bills, National Insurance increases, the coronavirus hangover and commodity inflation have forced banks to change their mortgage affordability tests, which means that consumers can no longer borrow as much as before.

In April, Santander tightened its borrowing conditions, meaning fewer borrowers could meet their loan criteria. The changes reflect the 1.5% increase in National Insurance, as well as soaring energy and household goods costs. Essentially, borrowers will have significantly less disposable income, which will reduce their ability to repay their loans.

With Santander moving, the UK’s biggest high street, Barclays, HSBC, Natwest and Lloyds are expected to quickly follow suit. Some bankers say other lenders are already making changes to their affordability tests to reduce their risk exposure from the rising cost of living.

The stricter lending criteria will reduce the size of capital available to borrowers. The reduction in the amount of loan available to buyers could impact real estate markets as borrowers may not be able to buy their favorite home.

Financial capacity checks imposed on buyers are handled through voluminous documents in which borrowers must list all their major expenses. Those with the highest household bills will be most affected by the changes. Large car payments, credit card bills, child care costs, and divorces with large settlement payments will be penalized the most.

Ray Boulger, senior analyst at brokerage John Charcol, said: “This is the biggest mortgage crunch since 2009 as interest rates rise and we are experiencing the largest increase in the cost of living in years. 1980”. “The difference between now and 2009 is that the banks then had a huge lack of funds, whereas now the problem is that it is more difficult for some people to borrow.”

Tighter affordability controls and rising mortgage rates hit home prices.

With soaring inflation and rising living bank costs, it is inevitable that banks will have to reevaluate their lending criteria when deciding what they are able to lend to borrowers. Mortgage rates have doubled in the last 6 months alone. This doubling of rates has put even more pressure on homebuyers’ ability to repay their loans from their existing disposable income.

Many banks rely on household spending figures from the Office for National Statistics (ONS) to assess a borrower’s spending – even if an applicant’s actual monthly spending is lower – to see if borrowers can pay their monthly mortgage after bills and expenses.

Yet that ONS data will soon consist of higher energy costs, meaning some homebuyers may not be allowed to borrow as much this year.

Last week Santander told mortgage brokers it was updating its affordability test to reflect the latest data from the ONS. It will also take into account the increase in national insurance contributions and various tax rates.

Given improved stress tests for borrowers, house price inflation, which has seen the average house price soar to record highs of £282,753, is likely to fall. Aspiring homeowners will have to look for cheaper homes in less expensive areas.

Halifax chief executive Russell Galley said: “Buyers face the prospect of higher interest rates and a higher cost of living. With affordability measures already extremely tight, these factors should lead to a slowdown in house price inflation over the next year.

The proposed changes along with the rate increases leave the UK property market, which has been hot since COVID-19, in a dangerously precarious position.

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