First Time Buyers Struggle to Secure Mortgages as Lenders Toughen Up on Approval Criteria

First Time Buyers Struggle to Secure Mortgages as Lenders Toughen Up on Approval Criteria

UK citizens wishing to either remortgage their property or looking to buy their very first home, may find that they struggle when it comes to applications being accepted by lenders due to a tightening on lending criteria. Reports show that around 25% of all homeowners will be negatively financially impacted by the ever increasing inflation rate, making lenders less confident in the ability for buyers to meet their monthly mortgage repayments.

While the UK economy continues to be seriously effected by the high inflation rate, lenders have reacted by applying more stringent assessments when it comes to approving mortgage loan products, making it increasingly difficult for buyers to secure a new home.

High street banks, Halifax and HSBC have announced that their criteria for affordability is going to be reviewed this week as they suggest that they will most likely be adopting a more cautious approach when approving loans to FTB’s and remortgagers. This decision comes following the recent rise, in December 2020, of interest base rates from 0.1% to 0.25%.

January 2021 has seen an average rate of 2.5% on a typical two year fixed rate, up slightly for December’s rate of 2.4%.

Mortgage lenders are understandably concerned as to whether borrowers will be in a position to meet their financial responsibilities, when taking into account the massive hike in gas and electricity charges and other increased living costs that we can all expect to see this year.

“Families are facing a steep rise in energy bills and an increase in the general cost of living. This, teamed with the recent rise in interest rates to 0.25 per cent, is leading many lenders to take a more cautious approach when reviewing applications,” commented Miles Robinson, head of mortgages at online mortgage broker Trussle,.

“In such an uncertain market and in the face of the ongoing pandemic, it is essential for not only lenders, but consumers to act with caution and explore all options available with an independent adviser before committing to significant changes in their finances.”

Analysis by trade body UK Finance indicated that HSBC and Lloyds Banking Group combined provide around 25% of all mortgages in the UK. The tightening of the criteria for lending has most affected people from low income families when it comes to gaining approval as they are considered to be of the highest risk category.

Finance expert at the financial comparison firm Moneyfacts, Rachel Springall, warned:

“Lenders can change their underwriting criteria if they are concerned about affordability and if a prominent brand decides to do this, other lenders could follow suit,” she said.

“Would-be buyers may see their outgoings rise this year and if their wages fail to rise as well, they may have to dip into their savings to cover unexpected costs.”

If the rules on affordability change, she added, “That could be particularly costly for those falling off a fixed rate to a more expensive revert rate.

“If borrowers looking for a deal are concerned about passing affordability tests, it’s always wise to go through an independent broker who can assess the market and offer insight.”

She explained that this could spell the end of home owner dreams for a huge number of first time buyers:

“If affordability rules tighten, they may have to wait longer to meet new criteria.”

Mortgage broker, David Hollingworth, from L&C Mortgages, explained how lenders will look to the ONS (Office of National Statistics) to gather data to adjust their affordability criteria accordingly.

“As higher living costs begin to bite so it follows that it could have an impact on how much lenders are prepared to lend,” he said.

“Lower earners are those most likely to feel the pinch as their disposable income is hit by higher energy bills and other costs. It won’t be welcome news for first-time buyers who are likely to be stretching their borrowing amount as much as possible in the face of high house prices. Any pulling back could impact their chance to get on the ladder.”

Category: Mortgages