Lenders reduce loan sizes as cost of living squeezes affordability
Some mortgage applicants are seeing borrowing amounts slashed reflecting a more cautious approach from lenders, according to advisers.
Barry Webb, founder at Mortgage Saving Experts, said in one case, a client secured a mortgage offer for £500,000 at the end of last year, but this was reduced to £483,000 after they changed properties, despite no other change in circumstances.
In another case the broker said a client was originally told they could borrow £295,000, which has now been updated to £265,000.
Santander recently announced an update to affordability calculations as inflation hit the highest level in 30 years.
Other major lenders appear to have followed suit without publicly saying so.
Rob Peters, principal at Simple Fast Mortgages, said lender affordability has “massively reduced” particularly for those on low incomes.
“Many sourcing software and lenders’ website affordability calculators are showing higher loan amounts than are in fact possible when submitting decision in principles (DIPs).
“Undoubtedly increased cost of living is being factored in at the backend but not in the affordability calculators and sourcing software,” he said.
Chris Sykes, technical director at Private Finance, agreed that affordability changes would hurt those who need it most. He felt that middle earners with commitments and dependents would acutely feel the changes.
Brokers overcome changes
However, brokers are finding ways to get cases through.
Robert Payne, director at Langley House Mortgages, said he has extended terms to make cases work in situations where lenders are reducing the maximum borrowing available.
He said: “We recently had a client looking to remortgage his existing mortgage balance onto a new rate and the affordability was failing with most lenders.
“His income and expenditure had not changed from when he initially took out the mortgage and, in the end, we had to increase the term from 25 years to 31 years in order for it to work.”
Sykes said some lenders will also give more flexibility on five-year fixes, and in other cases applicants may be able to consider using interest only to borrow more.
Nevertheless, brokers feared that the situation could get worse with inflation tipped to rise past 8% later this year.
Paul Neal, equity release and mortgage adviser at Missing Element Mortgage Services said he has seen more people struggling to meet affordability.
He added: “It seems to be a constant battle for those seeking to buy their homes. Tightening affordability along with the cost of living rising is forcing people to stop chasing their dreams of owning a home to continue to fund their landlord’s homes instead. More needs to be done to help otherwise we may well be heading into a future of renting and mortgage prisoners.”
Mortgage Saving Experts’ Webb said it is understandable that lenders are making changes.
He added: “They are right in reducing the amount of money people can borrow. It is being responsible.”