Rising energy bills and mortgages - Daily Telegraph

"Higher energy prices will mean borrowers having less disposable income. This is a key part of the calculation that lenders use to determine affordability and therefore we may see a reduction in the amount you can borrow. One of the most common credit issues we see with mortgage applications is late payment on energy bills and we hope that this does not become a bigger issue."

"When looking at the affordability of a mortgage, lenders assess clients in a number of ways. Looking at a borrower's whole financial picture gives an indication of the financial stresses someone may be in in the event of rising prices. The biggest impact rising energy prices could have though is whether clients miss or default on their commitments as this will potentially impact on their overall creditworthiness. However, with lenders offering longer term fixed rates this makes for easier budgeting and factoring in any increasing energy costs thereby giving reassurance to both the borrower and lender."

"Lenders may start to adjust their maximum income multiples to accommodate the increase in living costs, meaning maximum loan sizes may be lower. This is especially troubling for first-time buyers, who are already tending to hit maximum loan figures and struggling to get onto the property ladder given rising house prices."

"The short answer is that most most, but not all, lenders don't specifically ask. Yes their affordability modelling might mean borrowers can't borrow quite as much but we will be talking marginal differences where many lenders know clients can afford more but cap borrowing at, say, 4.5 times income. "The real takeaway though is that with most people's mortgage being their largest outgoing, if budgets are tight they need to seek mortgage advice to look at remortgaging onto a better rate or, as a last resort, extending their term to reduce payments and make ends meet each month."

"A rise in energy costs, or any basic living costs for that matter, will definitely impact lenders' affordability calculations and mean a reduction in the mortgage that a given income can generate. Some lenders will directly ask the client for their itemised costs, other will use ONS data, so it could be possible that lenders using ONS figures will have a lag before their affordability models are impacted. That being said, the increase in energy costs alone are unlikely to move the the affordability results too much, so I am not expecting it to be a huge issue for clients. The overall cost of living increase is more of a concern for affordability models, with rises in energy, council tax, food and fuel all happening at the same time."

While lenders are likely to adjust affordability models to reflect higher energy prices, the same lenders have been busy relaxing affordability constraints recently, allowing higher income multiples for example, as they compete for business. The net effect for many borrowers on how much they can borrow may end up being positive.