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Affordability declining as rates rise

ended 16. June 2023

A Newspage friendly at the Daily Telegraph is writing a piece this morning on MQube data showing that for someone on a £50k salary, they will be able to borrow £205,000 at a stress rate of 10.49% (based on 6pc rates, which I believe the Moneyfacts two-year average is now). That's down 27% since Feb 2022 (when the Bank Rate rose from 0.5pc) and they could borrow £282,000.

Here's a breakdown:

At a stress rate of 6.99% - £282,000 (Bank Rate 0.5% in Feb '22, SVR + 3%)
At a stress rate of 8.99% - £232,000 (Bank Rate 4.50% now, SVR + 1%)
At a stress rate of 10.49% - £205,000 (Bank Rate 6% projected, SVR + 1%)

She's keen for views on how, and to what extent, your clients' affordability has gone down in the face of rising rates, both longer term (past year) and shorter term (past few weeks). Any thoughts, whizz them across ASAP.
 

6 responses from the Newspage community

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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
Maximum borrowing capacity has definitely decreased both over the past year and more recently with high stress-test rates and cost of living being factored into lenders' affordability models. There are, however, still lenders, like Accord, who can offer income multiples of 5.5x in certain circumstances so there are certainly exceptions.
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Elliott Culley
Director at Switch Mortgage Finance
Due to the increase in mortgage rates and the rise in the cost of living as a result of inflation, affordability and the amount someone can borrow is less than it was in previous years. Mortgage lenders calculate affordability differently and what you could borrow with one lender could be more with another. The best option right now for a client struggling with affordability is to speak with a mortgage broker. We can easily assess the lender with the best affordability for the client's particular circumstances.
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Chris Sykes
Technical Director and Senior Mortgage Adviser at Private Finance
The change in affordability is definitely noticeable. I've done some comparisons between affordability calculators I did 12-18 months ago and now, and in several circumstances the maximum borrowing has been hundreds of thousands less now. If borrowers took on their maximum possible borrowing and have had no increase to income, they may find it much harder to refinance when the time comes round. As a broker, I've had to be taking a lot less for granted when it comes to affordability. Cases where you'd expect affordability to pass with flying colours now actually need some in-depth analysis to achieve what the borrowers would like. Lenders' affordability calculators vary so much now, too, where you might get one lender saying they can lend £650k then another saying they can lend £850k (an example from this week) where previously this disparity was usually a lot less.
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Gary Bush
Financial Adviser at MortgageShop.com
We have been analysing how UK mortgage underwriters have been reacting to the mortgage rate chaos for the past six months and are seeing some disastrous drops in the all-important Maximum Mortgage Calculations. One particular case, which received a High Street lender's underwriters agreement last December, due to legal problems still hadn't funded/used the mortgage monies, and if we weren't careful and allowed the case to be reassessed by the same lender underwriter, the maximum loan amount would have dropped £50,000 on the exact same client circumstances. I have never had so many questions from people I meet when disclosing my occupation. It's clear gaining the highest agreement to a mortgage is becoming even more specialised than it was, applicants need truly impartial and specialised financial adviser help to navigate these choppy waters.
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Graham Cox
Director at Bridging Hub
Maximum borrowing amounts have been dropping markedly over the past couple of weeks, as wholesale borrowing costs for lenders have risen sharply. Hopefully, the inflation outlook improves soon and this current spike in rates is a blip, much like the market stabilised after the Liz Truss mini-budget debacle. As things stand, house prices will fall sharply as something has to give.
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Joe Stallard
Director and Advisor at House and Holiday Home Mortgages
We've seen how increasing rates and the growing cost of living are both contributing to the affordability challenges faced by clients. Some lenders use ONS data when calculating affordability, so any changes in those figures impact the borrowing capacity. This past year has witnessed a steep decline in affordability due to rising rates, while recent weeks have seen a further reduction. It's messy out there. And given it's such a difficult period for people who want to maximise their borrowing potential, our advisors are working flat out to give them every opportunity to find the right deal for them.