Impact of rising energy bills on mortgages

Journalist: Rachel Mortimer, Daily Telegraph

ended 29. July 2022

Looking for mortgage broker feedback on what the impact of rising energy bills has been on how much homeowners or first-time buyers can borrow for a mortgage? 

Have you already seen borrowers having to take out longer mortgages to pass affordability tests now that their monthly outgoings have increased dramatically? 

If energy bills rise to as much as £500 for some households as predicted by the end of the year, what will that mean for borrowers and mortgage affordability? 
 

Any thoughts or anecdotes greatly appreciated.

Huge thanks, 

Rachel

4 responses from the Newspage community

With the forecast increase in energy prices it will most certainly impact the affordability of clients with certain lenders more than others; those that specifically ask for the current figure as opposed to using average ONS data will likely see the increases have the largest effect on their affordability models. Borrowers need to be careful and not be tempted to 'play down' their bills on the application; many lenders will ask to see bank statements as part of their underwriting process and things will go horribly wrong for applicants that have been less than honest with the figures they have told the lender on their application.
The cost of living crisis has begun to bite with mortgage lenders changing the ONS data in their affordability calculators to account for rising energy costs. This means that affordability tests for lower-income people are particularly affected due to rising household utility costs, increasing mortgage rates, and rocketing food prices. That said, there is now a considerable gulf between lenders, with some major high street lenders turning the screws while others take a more relaxed attitude. For example, take a single person earning £30,000 with a £250 per month personal loan and a £10,000 deposit. One of the big six lenders capped out a maximum loan of £101,900, yet another building society, also mainstream, gave a total loan of £134,700, a massive uplift of more than 32% difference. This illustrates the staggering difference in affordability calculations currently. So forget the old mantra of multiplying your gross income by 4.5x; those days are over for the moment. Instead, prospective buyers should talk to a competent and experienced independent mortgage broker.
The cost of living crisis has only started to take shape with lenders, with many adjusting how much clients can borrow. It's going to only get worse without government intervention to cap the cost of utilities, but there seems to be no interest in doing this at all and if borrowing capacity reduces it could see some priced out of being able even to purchase a home in the short term, and there is also a massive variance between lenders with what can be borrowed depending upon your income. So the age-old 4.5x income is well and truly dead. Speak to a professional and understand your budget.
With the huge hike in energy bills we’re seeing mainstream lenders such as Santander reduce lending capacity, meaning first-time buyers are finding it harder to achieve the mortgage they need to get on the property ladder. Lenders are going to be looking at other costs in buyers' lifestyles that need to be financed. With ONS figures on the rise we will see further lenders follow suit as they look to reduce their risk as there’s been no government intervention. Producing a budget for a client is proving more difficult as it’s hard to estimate what their running costs in the home will be month to month in the future. Typically I would be recommending 25-30 year term mortgages but with rates as much as 2.5% higher since the start of the year it’s not uncommon to be sourcing 35-40 years resulting in vast amounts of more interest for the buyer in the long term.