Mortgage warning as lenders tighten criteria – what to do to shake the effects | Personal finance | Finance

As the cost of living crisis continues with expected tax hikes and price hikes, mortgage lenders have tightened their criteria as fewer people are likely to pay their mortgage payments. Matt Coulson, Director and Director of Heron Financial, shared what the tighter criteria mean for borrowers and how first-time buyers can make the most of a bad situation.

Many households have been completely caught off guard by the rising cost of living and fear even more that they will not be able to make ends meet by the end of the year.

Additionally, as the affordability of normal life becomes higher and higher, mortgage lenders have realized that under their current criteria, some borrowers may not be able to pay their mortgage bill.

Mr Coulson noted that the whole situation “is bad news for first-time buyers and families looking to move to a larger property”.

He explained: ‘Lenders will not be able to continue with their current affordability calculators when we have the new data from the ONS, which will show the cost of living is rising quite rapidly.’

“It stands to reason that if the cost of living continues to rise, lenders may restrict borrowing further.

“This is not good news for first-time buyers and families who need to move to a larger property, who are already facing high house prices and who are now finding that they cannot borrow as much as they can. could before.”

It’s also possible that over the past year, with stamp duty holidays and record high interest rates, borrowers have gotten a little too comfortable with the ball in their court.

After the base rate hike in December, lenders were incredibly quick to raise mortgage rates, making home ownership unaffordable in the modern market.

These increases alone would have made consumers wait longer before stepping onto the real estate ladder.


Mr Coulson added: “Unfortunately the people most affected by this will be first-time buyers and families. It is those who seek to extend their income as much as possible and borrow as much as they can who will be affected.

“Typically it’s first-time buyers trying to move up the ladder and people moving to a bigger property and needing a bigger mortgage, which is usually a growing family. .”

Another sticky situation has formed as a result for those looking to re-mortgage as they may end up with unaffordable rates and no longer qualify for the cheaper ones.

Mr Coulson suggested there is still time for borrowers to better position themselves for this blow.

He continued, “There is an opportunity to go out and buy something or refinance before these changes happen.

“If you are concerned that your borrowing abilities may be affected, you should speak to a broker and get advice. There is still a window of opportunity to work on current affordability modeling before major lenders start making these kinds of changes. »

He also shared that past rulings by regulators could be a saving grace for consumers, with the regulator capping affordability criteria in the past if it could pose a problem for the market.

Mr Coulson said: “It’s a tricky one because the lenders and the regulator don’t want to put people in more debt than they can afford; at the same time house prices are rising and people need more money to buy a house these days.

“At the moment the rising cost of living and tougher lending criteria mean people won’t be able to borrow as much, but we could see the regulator and lenders helping out with that again.”

While the rising cost of living, tighter standards and rising interest on debt are beyond our control, Mr. Coulson pointed to a vital aspect which households can control and which will significantly improve their eventual position. from 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 car debt, which you can also try to reduce.

“While you can’t control a lender’s affordability criteria, you can control what you buy, to give you the best chance of getting the mortgage you need.”

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