SWT Wealth Management
Advertising feature: As of 1st August 2022, the Bank of England has amended mortgage affordability checks. A stress test was introduced in 2014 after the financial crisis of 2007- 2008 to ensure unaffordable lending did not happen again and to ensure mortgages remained affordable should interest rates increase.
Under the stress test potential borrowers would have to prove that should interest rates increase by 3% within the first 5 years of borrowing, they would still be able to afford the mortgage before a mortgage offer was considered. Interest rates only rose by 0.5% between 2017 and 20211. Leaving many to believe that the stress test was too high. The bank of England believes thousands of mortgage customers missed out on the potential for larger mortgages whilst this stress test was in place.
However, this should not be viewed as relaxation of the rules, as other affordability tests will remain in place. Lenders will still ensure that lending calculations will be based on forecasted interest rates, with a minimum stress test of at least one percentage point above the borrower’s original mortgage rate.
With energy prices rising at unprecedented rates, lenders will also factor this into affordability calculators and lending will be capped at a maximum lending amount of 4.5 x annual income.
It is likely interest rates will rise further to try and combat inflation, which at 9.4% in June 2022 is at a 40-year high3. However, house prices are continuing to rise and had risen to an annual growth rate of 13% also in June2 according to Halifax Bank. This is mainly down to supply and demand, with less properties on the market at the moment. This is then accounting for the slowing down of mortgage applications with consumers concerned over affordability and the need for bigger deposits especially for first time buyers. With the continued rise in the cost of living, experts do believe the housing market will start to cool off in the coming months4.
The lack of properties on the market has also doubled the amount of ‘Down-Valuation’ mortgage rejections. This is where lenders value the property for mortgage purposes and have decided that it is not prepared to lend the amount the potential buyer wants to borrow, as it does not believe the property is worth the amount being asked. For example, a borrower has agreed to purchase a property for £320,000 and the mortgage lender values it at £270,000 for mortgage purposes and rejects their application. The only option in these cases is to renegotiate the seller’s price or to stump up a higher deposit if they are not prepared to budge. This is an increasing problem lots of first-time buyers are encountering, especially if they only have a 5% deposit and so have very little wiggle room.
Taking advice when applying for a mortgage continues to remain paramount to ensure that you are not only matched to the right mortgage for your needs but also to ensure it is affordable and remains affordable over the longer term and should circumstances change.
The value of an investment with St James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.
The Level and basis of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstance.
1,3Source: ONS.org July 2022
2Source: Halifax House Price Index July 2022
4Rightmove, Zoopla, Savills. July 2022
The home or other property on which the mortgage is secured may be repossessed if repayments are not maintained.
SWT Wealth Management is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. We offer a comprehensive range of first charge mortgages from across the market, which lenders make available to mortgage intermediaries. A procuration fee is paid to the intermediaries by the lender. Some buy to let mortgages are not regulated by the Financial Conduct Authority.
To find out ways we can help visit: www.swtwealth.co.uk or contact us on 029 2252 0168 or 07946183512