Borrowers with soaring household bills and shrinking incomes could struggle to get the home loans they need as banks begin the biggest crackdown on mortgage checks in more than a decade.
Mortgage brokers have warned that soaring energy bills, tax hikes and soaring commodity prices have prompted banks to tighten their mortgage affordability tests, making it harder to borrow so much.
Santander last week made it harder for borrowers to meet its lending criteria as it told brokers it would reflect rising household bills, national insurance and taxes.
Squeeze: Mortgage brokers have warned that soaring energy bills, tax hikes and soaring cost of goods have prompted banks to tighten their mortgage affordability tests
Brokers told the Mail on Sunday that the biggest high street banks – HSBC, Barclays, Lloyds Banking Group and NatWest – are all considering similar moves.
Real estate sources said the punitive checks would make it harder to take out larger loans, meaning many people may not be able to buy the home they want.
They warned that households with high monthly bills – such as those with large credit card debt or divorcees paying large settlements – will be particularly penalized.
Although there was a crackdown on mortgages in 2014 when the affordability rules came into effect, experts said rising rates and soaring bills made the situation even more difficult.
Ray Boulger, senior analyst at broker John Charcol, said: “This is the biggest squeeze [in mortgage lending] since 2009 because interest rates are rising and we’re having the biggest rise in the cost of living since the 1980s. The difference between now and 2009 is that the banks were sorely short of funds then, so that today the problem is that it is more difficult for some people to borrow.
A banker said: ‘Some lenders are already changing affordability testing behind the scenes to try to alleviate the cost of living issues we’re starting to see.’
Banks modify their “accessibility calculators”.
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.
But this ONS data will soon include higher energy costs, so some people may not be allowed to borrow as much in the coming months.
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.
He added that he was increasing the stress test on his five-year fixed-rate deals, which could make it harder for people to borrow for a longer period.
Andrew Montlake, of mortgage broker Coreco, said: “We’re starting to hear rumors that banks are tightening affordability controls.” All lenders talk about it. You may see a situation where some people cannot borrow what they need, which means they will have to look for cheaper property – in cheaper areas.
“I suspect we’ll see some people miss out, especially those who need big loans with small deposits.”
Other banks may soon follow suit. NatWest said its affordability tests are “continually reviewed based on market conditions.”
Barclays said: “We continuously monitor the cost of living, taking into account changes, if any, in our baseline affordability models and assumptions on an ongoing basis.”
Banks have already started implementing tougher “stress tests” on loans as interest rates rise. It is designed to check whether borrowers can afford a standard variable rate plus 3%.
Tighter accessibility controls and increased stress tests could affect property prices.
Halifax said the average house price hit a record £282,753 in March, a tenth more than the previous year – marking the biggest annual jump since the financial crisis.
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.”
In another blow for homeowners, the average interest rate on fixed-rate mortgages has also risen since the start of the year following the Bank of England’s decision to raise the base rate.