A journalist at the Daily Telegraph is writing a piece about the impact of rising energy bills on the cost/availability of mortgages. She specifically wants to know whether higher outgoings on energy mean borrowers may be shut off from the best rates and see their affordability impacted? Deadline is COB! Just a few sentences will do!
8 responses from the Newspage community
"Higher energy prices will mean borrowers having less disposable income. This is a key part of the calculation that lenders use to determine affordability and therefore we may see a reduction in the amount you can borrow. One of the most common credit issues we see with mortgage applications is late payment on energy bills and we hope that this does not become a bigger issue."
"Lenders may start to adjust their maximum income multiples to accommodate the increase in living costs, meaning maximum loan sizes may be lower. This is especially troubling for first-time buyers, who are already tending to hit maximum loan figures and struggling to get onto the property ladder given rising house prices."
"The short answer is that most most, but not all, lenders don't specifically ask. Yes their affordability modelling might mean borrowers can't borrow quite as much but we will be talking marginal differences where many lenders know clients can afford more but cap borrowing at, say, 4.5 times income. "The real takeaway though is that with most people's mortgage being their largest outgoing, if budgets are tight they need to seek mortgage advice to look at remortgaging onto a better rate or, as a last resort, extending their term to reduce payments and make ends meet each month."
"A rise in energy costs, or any basic living costs for that matter, will definitely impact lenders' affordability calculations and mean a reduction in the mortgage that a given income can generate. Some lenders will directly ask the client for their itemised costs, other will use ONS data, so it could be possible that lenders using ONS figures will have a lag before their affordability models are impacted. That being said, the increase in energy costs alone are unlikely to move the the affordability results too much, so I am not expecting it to be a huge issue for clients. The overall cost of living increase is more of a concern for affordability models, with rises in energy, council tax, food and fuel all happening at the same time."
"When looking at the affordability of a mortgage, lenders assess clients in a number of ways. Looking at a borrower's whole financial picture gives an indication of the financial stresses someone may be in in the event of rising prices. The biggest impact rising energy prices could have though is whether clients miss or default on their commitments as this will potentially impact on their overall creditworthiness. However, with lenders offering longer term fixed rates this makes for easier budgeting and factoring in any increasing energy costs thereby giving reassurance to both the borrower and lender."
"If you are on a standard variable rate, make sure you find out if you can swap to a better deal. With energy costs going up and millions paying more than they need to on a mortgage, don't get stuck paying a higher rate than necessary when you are literally a few clicks away from lowering your monthly repayments."
While lenders are likely to adjust affordability models to reflect higher energy prices, the same lenders have been busy relaxing affordability constraints recently, allowing higher income multiples for example, as they compete for business. The net effect for many borrowers on how much they can borrow may end up being positive.
Mortgage lenders don't offer different rates based upon affordability; this is something that we should get away from thinking - mortgages aren't assessed as personal loans where the headline rate offered for a personal loan differs depending on your status. All that will change is the ONS data that lenders use in calculating affordability with regards to higher energy prices and be reflected so very marginally as not to bother thinking about. The most significant impact, especially for first-time buyers, is the hike in NI and reducing the threshold at which student loans are to be paid back. This will have a far more negative effect on young people's affordability than any amount of utility cost rises. Although, on the one hand, the Government advocated for 'generation buy', now they seem to be advocating for 'generation skint', it's scandalous the pressure young people will be put under.