WILL REMOVING THE ‘STRESS TEST’ MAKE HOMEBUYING MORE AFFORDABLE?
We have all witnessed the rise in house prices in recent times, affecting so many people, not only those currently renting and first-time buyers, but existing homeowners seeking to move up the property ladder to allow for growing families or those looking to find a property that will suit them in old age.
Property price increases have many knock-on impacts, with the average detached house price increasing by over £60,000 during the Covid pandemic1, the cost of upscaling to a larger home simply became unaffordable for many. According to analysis carried out by Santander, fuelled by a demand for more space at home, record numbers of applications were made to extend homes instead of moving since 2020.2 Furthermore, the end of last year’s Stamp Duty holiday has meant that the demand for moving home this year has fallen by a third since 2021, according to an analysis of the figures released by HM Revenue & Customs.3
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The other factor that inhibits more home ownership is being able to afford the repayments on a mortgage, especially with the interest rate rises seen this Summer in 2022. House prices are generally seen to be placing burdens, particularly on first time buyers who, even before they talk to an adviser about a mortgage, often struggle to pull together the money for a deposit.
Since 2014 lenders have had to make sure that they ‘stress test’ applicants’ ability to be comfortable paying their mortgage if and when rates rise by 3% from their starting rate. At the beginning of August, the Bank of England (BoE) decided to abolish the need for lenders to continue stress testing in this way. Other statutory requirements, such as borrowing no more than 4.5 times income remain in place alongside other considerations.
These tests were put in place after the 2007-08 financial crisis, part of a package of measures designed to prevent lending that had got out of control in the run-up to the crash.
Industry commentators as a whole believe that the Bank’s decision to remove the stress test may not be as reckless as sounds, and the market is not turning into a free-for-all, with lenders still utilising their own forms of testing, but to varying degrees according to their own perceptions of risk. The changes are expected to potentially make it slightly easier for some borrowers to get a mortgage, however the biggest constraint on new mortgages is likely to remain that of borrowers affording the initial deposit,. Before starting your property search, it is most important to speak to a qualified independent financial adviser/mortgage broker who will assess your mortgage borrowing limits & affordability, this will focus your attention on the correct price range of properties within your budget.
IS IT TIME TO SWITCH YOUR MORTGAGE? At the beginning of August, the mortgage industry regulator, The Financial Conduct Authority (FCA), published a statement estimating that there are approximately 370,000 borrowers who could save money by switching their mortgage.1
The FCA also gave insight into the savings that can be made across the nation – amongst the 370,000 homeowners highlighted that over a period of two years, 110,000 are estimated to save less than £500 per year, 150,000 of them could be missing out on the chance to save over £1,000
per year, and another 110,000 homeowners potentially could save between £500- £1,000 per year1.
The research states that 74% of homeowner’s mortgages “are on fixed rates, typically fixed between 2-5 years”1, though if yours is coming to an end soon, it’s advisable to start thinking about what comes next, and that it’s generally recommended to seek specialist mortgage and protection advice from those within the industry before making any decisions.
Given the rising cost of living, it’s never been more important to consider your options to ensure that your mortgage fits your exact circumstances. We are aiming to do everything we can to support our clients through this challenging period, so please do not hesitate to contact us and arrange an appointment to talk more about your arrangements and how our expertise could help you.
For further information please contact Peter Hunt on: 0121 503 0961
www.moneywatchfinance.com
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THE MIDLANDS PROPERT Y GUIDE MONE YWATCH F INANCE
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