Tax rises, soaring bills, energy costs and household basics: The cost of living increases are influencing banks to tighten their affordability criteria.

These changes to the calculations the use to decide how much you can afford to pay back (and therefore how much they should lend you) are meaning houses that may have been in budget at the beginning of the year may now be out of your budget.

Obtaining a mortgage can be both a stressful and confusing time especially if you are unsure of whether you are receiving a good rate as they tend to regularly fluctuate. Unfortunately, the low rates and better availability that we’ve been seeing since the start of the year are disappearing as banks and mortgage companies start to include the increased cost of living when they calculate how much mortgage applicants can afford to borrow.

What does this mean?

This means that if you started looked for a new house in January 2022 your bank may have offered you a larger mortgage then, than if you asked for one now – if you’re unsure if this will affect you, get in touch with one of our independent mortgage advisers and we’ll help you understand any changes.

Ultimately, if banks reduce their lending, there will be fewer available buyers and the property market is likely to slow down. This has a knock-on effect for sellers and everyone involved in the sale (moving companies or estate agents for example) but there is a potential silver lining – if you have sold your house already, or are renting, and have a mortgage already agreed, you could find yourself in an advantageous position.

What are Affordability Calculations?

Affordability calculations are the way that banks and mortgage companies work out what they believe you are able to spend on a mortgage every month without struggling. As the price of utilities (gas, electricity, water etc), and essentials such as food increases, the amount of ‘spare’ money an individual or family has every month decreases – this means that the amount that (on paper) you can afford to put towards your mortgage decreases, even if your salary stays the same. This is reflected in how much a bank will lend.

What should I do?

If you are considering a mortgage/remortgage in the next 6-12 months – you really need to start considering all the options available to you – acting promptly could save a lot of money in the long run. Our advisers can recommend the best course of action for you, and in some instance may be able to lock in a lower rate for you way before you need to remortgage.