The Times - mortgage affordability

ended 26. October 2021

A journalist at The Times has heard from some brokers that, with the cost of living increasing, lenders are increasingly likely to review their affordability calculations when considering mortgage applications.

Halifax has already tightened its lending restrictions for those with smaller incomes (borrowers earning between £30,000 and £40,000 can borrow up to 4.49 times their income, regardless of deposit size, down from a previous cap of 4.75 times).

Her questions are:

  • Do you know of any other lenders that have restricted some LTIs for lower earners, in light of rising living costs?
  • Do you think more lenders will follow suit, either officially or unofficially, and perhaps look at people slightly less favourably?
  • Who are the people who are likely to be most affected?

Please keep your responses short and to the point. Soundbites, not War and Peace! Deadline is fairly tight - 3PM today.

8 responses from the Newspage community

Star Quote
"Rising living costs eat into surplus income, which largely impacts low to medium earners, so it makes complete sense from a responsible lending point of view to reduce the maximum loan to income ratios for those that are affected. It's a tough reality as it means that those who are already struggling to borrow will be faced with yet another obstacle but you can't argue with the principle behind it. Perhaps it is time to introduce new support schemes aimed specifically at this category."
Star Quote
"The Halifax is often seen as the leader in terms of policy with other lenders following suit thereafter. So it will not be a surprise to see others following suit by restricting the amount people can borrow by reducing their published LTI's or amending their affordability calculators in the coming days and weeks. Those most affected will inevitably be those on lower incomes with rising costs often impacting their net income more than those who earn more. For first-time buyers looking to get onto the property ladder, things are going to get a lot harder. Rising house prices, the threat of an impending interest rate rise, increasing fuel and living costs and lenders restricting the amount people can borrow certainly isn't a recipe for confidence."
Star Quote
"The majority of lenders tend to factor ONS data into their affordability calculators so if the cost of living is going up, it stands to reason that they will be tightening up on maximum loan amounts officially and unofficially. Normal earners with less disposable income will, as usual, bear the brunt, compounded by the incoming increases to National Insurance. As ever, though, the public should talk to a broker. At the start of this month I had a case where Halifax were only willing to lend £124,490 and I received their mortgage offer today from Newcastle Building Society for the full £209,950 that the client needed. Same income, same clients but an £85,000 difference in what the lenders were willing to lend."
Star Quote
"HSBC are another lender who have tightened their affordability for lower earners. Previously, a minimum income of £30,000 was required to borrow 4.75 x income. Now, an income of £40,000 is needed. If income is less than £40,000, the income multiple reduces to 4.49. In contrast, HSBC increased their income multiples to 5.5x for higher earners with income above £100,000. It is no surprise that wealthier people will be least affected by rises in living costs. For the richest 1%, private banks can offer mortgages above £1 million without any cap on income multiples where income is above £300,000 or they have net assets of £3 million or more."
"Increasingly, we have seen lenders concentrating on affordabilty rather than simple income multiples. This of course has been further affected by the pandemic and will no doubt hit those on lower and irregular incomes, such as those bolstered by overtime or bonuses, at higher loan to values. "Increasing enery and fuel prices, coupled with inflation will exacerbate affordability pressures in the short to medium term. The key in the mortgage market is that lenders are fishing in the same pool looking for the same clients, which is bad news for those that do not quite fit the perfect lending mould."
"Lenders' affordability models are generally underpinned by data from the ONS, so as they update their figures for the cost of utilities, housekeeping costs, etc, this will naturally feed through to lenders' affordability models. As these costs rise, the level of mortgages available for a given income will fall. LTI (loan-to-income) limits on the other hand tend to be driven more by lenders needing to maintain their lending books within certain limits set and agreed with the regulators. If they find that a certain part of their book is under-performing, they will maybe relax controls, such as LTI's, to attract more business. Likewise if they see themselves taking on too much business in that area, they can tighten controls to limit in-flow. "Given the recent moves made by Halifax my guess would be they are trying to re-balance their lending book in certain key areas, rather than seeing certain areas of the market as higher or lower risk than previously."
"Unfortunately it is going to be those on lower incomes who suffer. As most of a low earner's income is needed to cover the essentials, such as gas, electricity and food, there is less disposable income available to cover any increases in costs and therefore lenders look upon them less favourably."
"Something to bear in mind to ensure some clarity, the last time that Halifax had an LTI of 4.75x income was in 2020. In fact, the latest changes from Halifax to changing their LTI to 4.49x income was an INCREASE. Due to Covid, the LTI Halifax was operating for an income of this level was 4x income so in fact we are seeing a loosening of affordability restrictions. A lot of lenders are returning to their old space and we are working with some lenders that are now back to offering 5x income or even 5.5x income in some situations. The mortgage market continues to be strong and mortgage lenders continue to want to help buyers purchase property. I think we can expect lenders to be closely monitoring affordability but I'm definitely not seeing the tightening of affordability happening yet."