As the cost of living crunch continues with expected tax increases and price rises still due, mortgage lenders have tightened their criteria as less people are likely to afford their mortgage payments. Matt Coulson, director and principal at Heron Financial, shared what the tightening criteria means for borrowers and how first-time buyers can make the best of a bad situation.
Many households have been completely blindsided by the rising cost of living and even more fear that they may not be able to make ends meet by the end of the year.
Additionally, as the affordability of normal life gets increasingly higher, mortgage lenders have realised that under their current criteria some borrowers may not be able to afford their mortgage bill.
Mr Coulson noted that the entire situation “is bad news for first time buyers and families looking to move to a bigger property.”
He explained: “Lenders won’t be able to continue with their current affordability calculators when we get the new ONS data, which will show the cost of living is increasing fairly rapidly.”
“It stands to reason that if the cost of living continues to increase, then lenders may restrict borrowing further.
“This is not good news for first time buyers and families needing to move to a bigger property, who are already facing high property prices and now find they cannot borrow as much as they could previously.”
It’s also possible that over the last year, with stamp duty holidays and a record low interest rate, borrowers got a bit too comfortable with the ball in their court.
Following the base rate rise in December, lenders were incredibly quick to pick up their mortgage rates, adding to the unaffordability of homeownership in the modern market.
These rises alone would have seen consumers needing to wait longer before getting on the property ladder.
Mr Coulson added: “Unfortunately, the people who are affected the most by this will be first time buyers and families. It is those who are looking to stretch their income as far as possible and borrow as much as they can who will be impacted.
“Typically, this is first time buyers trying to get on the ladder and people moving to a bigger property and need a bigger mortgage, which is usually growing families.”
Another sticky situation has formed as a result for those looking to remortgage as they may find themselves with unaffordable rates and no longer qualify for cheaper ones.
Mr Coulson suggested that there is still time for borrowers to better position themselves for this blow.
He continued: “There is an opportunity to get out there and buy something or refinance before these changes happen.
“If you’re worried about your borrowing capabilities being impacted then you need to speak to a broker and get some advice. There is still a window of opportunity now to work on the current affordability modelling before the major lenders start to make these kinds of changes.”
He also shared that past moves by regulators could be a saving grace for consumers, with the regulator placing a cap on affordability criteria in the past if it could be a problem for the market.
Mr Coulson stated: “It is a tricky one as lenders and the regulator do not want to burden people with more debt than they can afford; at the same time, house prices are rising and people need more money to buy a home these days.
“At the moment, the rising cost of living and stricter lending criteria means that people will not be able to borrow as much, but we may see the regulator and lenders helping with this again.”
While rising cost of living, tightening criteria and increasing interest on debts are not in one’s control, Mr Coulson pointed out one vital aspect that households can control and will greatly improve their possible standing with mortgage lenders.
He concluded: “You can do something about the amount of unsecured debt you have. The obvious ones are getting rid of credit card debt and loans but we also see a lot of debt for cars, which you can also try and reduce.
“While you can’t control a lender’s affordability criteria, you can control what you buy, to give yourself the best chance of getting the mortgage you need.”