Lenders cut loan sizes as cost of living slashes affordability
Lenders are limiting the size of mortgages as the cost of living rises, brokers reported.
Advisors say some mortgage applicants are seeing their loan amounts reduced, reflecting a more cautious approach by lenders.
Barry Webb, founder of Mortgage Saving Experts, said in one case a client got a £500,000 mortgage offer at the end of last year but it was reduced to £483,000 after changing ownership, despite no other change in circumstances.
In another instance, the broker said a client was initially told they could borrow £295,000, which has now been updated to £265,000.
Santander recently announced updated affordability calculations as inflation hit its highest level in 30 years.
Other major lenders appear to have followed suit without saying so publicly.
Rob Peters, director of Simple Fast Mortgages, said lender affordability had “massively shrunk”, especially for those on low incomes.
“Many procurement software and lender website accessibility calculators display higher loan amounts than is actually possible when submitting a decision in principle (DIP).
“There’s no doubt that the rising cost of living is factored in at the backend, but not in affordability calculators and procurement software,” he said.
Chris Sykes, CTO at Private Finance, agreed that the accessibility changes would hurt those who need them most. He said middle-income people with commitments and dependents would feel the changes intensely.
Brokers overcome the changes
However, brokers find ways to pass the business.
Robert Payne, director of Langley House Mortgages, said he had extended deadlines for cases to work in situations where lenders are reducing the maximum borrowing available.
He said: “We recently had a client who was looking to remortgage his existing mortgage balance at a new rate and affordability was failing with most lenders.
“His income and expenses hadn’t changed since he took out the mortgage and in the end we had to increase the term from 25 years to 31 years to make it work.”
Sykes said some lenders will also give more flexibility on five-year fixes, and in other cases applicants might consider using interest-only to borrow more.
Nonetheless, brokers feared the situation could get worse, with inflation expected to top 8% later this year.
Paul Neal, capital release and mortgage adviser at Missing Element Mortgage Services, said he has seen more people struggle to achieve affordability.
He added: “It seems to be a constant battle for those looking to buy their home. Tightening affordability and rising cost of living are forcing people to stop chasing their dreams of owning a home and continue to finance their owner’s homes instead. More needs to be done to help, otherwise we may well be heading into a future of renters and mortgage prisoners.
Webb of Mortgage Saving Experts said it’s understandable that lenders are making changes.
He added: ‘They are right to reduce the amount of money people can borrow. It is to be responsible. »