Homebuyers could struggle with mortgages as UK banks tighten affordability tests

theguardian.com:

Homebuyers wanting to take out a mortgage could soon struggle to get the size of loan they need, as banks begin taking into account the cost of living crisis when calculating how much they can lend.

Mortgage brokers have said soaring energy bills, the national insurance rise and a big increase in the cost of household goods are set to prompt banks to tighten their mortgage affordability tests, making it harder for consumers to borrow as much as previously.

Santander is now updating its affordability models as households experience a surge in the cost of living. Mortgage brokers told the Guardian that they expect the other big lenders – HSBC, Barclays, Lloyds Banking Group and NatWest – to follow suit.

Any significant reduction in the size of loan offered would be expected to slow the property market, as buyers would be forced to downgrade their ambitions.

Since the financial crisis more than a decade ago, mortgage applicants have had to undergo strict affordability checks. Borrowers typically have to fill in long documents in which they state all their significant outgoings, including monthly expenses on childcare, car repayments and even how much they spend on the gym.

Ray Boulger, a senior analyst at the broker John Charcol, said: ‘This is arguably the biggest tightening in mortgage lending since 2009 because interest rates are increasing, and we are experiencing the largest rise in the cost of living since the 1980s. The difference between now and back then is that banks had a huge shortage of funds then, whereas now the banks are looking at what their customers can afford.”

David Hollingworth, a director at Bath-based mortgage brokers, L&C, said: “As customers face soaring energy bills and big hikes in other household