Collapsed sales may rise as mortgage lenders toughen up - warning

Increasingly cautious mortgage lending could dampen the property market and cause more sales to fall-through, it has been warned.

Recent house price data has shown record property values but other research is also suggesting that mortgage lenders are imposing tougher requirements, which could stifle sales.

Analysis by fast sale firm Quick Move Now has found that 32% of property sales collapsed before completion between January and March of this year.

Of the sales that failed, 25% fell through because the buyer struggled to secure mortgage finance.

Danny Luke, managing director of Quick Move Now says this suggests that lenders are beginning to show more caution in light of rising interest rates and living costs.

He adds: “Property prices have been climbing and climbing in recent months. At the same time, the UK has been experiencing a steep rise in inflation and lots of people are beginning to really feel the pinch from steep rises in the cost of living. 

“It was inevitable that the squeeze on people’s wallets would begin to be reflected in mortgage companies’ affordability assessments. 

“From our conversations with potential buyers and estate agents, it is clear that lenders are being more cautious about which properties they’re prepared to lend on and how much home buyers can afford to borrow in light of rising day-to-day living costs. 

“Energy prices have already risen by 50% for most UK households, and they look set to increase even further through the latter half of this year and into 2023. That, of course, has a significant impact on homeowner affordability.”

Other reasons for transactions collapsing included the buyer changing their mind, the seller pulling out due to slow progress or a change or circumstances.There have also been reports about an increase in mortgage downvaluations.

Vadim Toader, chief executive of alternative lender Proportunity has similar concerns.

He says: “Lenders rightly want to ensure that those applying for a mortgage can afford their repayments. However, with the cost of living rising, it is difficult to predict how new buyers’ ability to pay their monthly mortgage will be impacted.

“We are in a state of flux, as energy prices only increased on 1st April, meaning many applying for a mortgage may not be able to accurately estimate their monthly outgoings.

This is hitting at a time when we are seeing the peak of mortgage applications - in 2021 we saw a 60% increase in potential buyers looking into their mortgage options from the first to the second quarter,  with the peak in mid-April. 

“With many potential buyers in this group facing the prospect of being rejected for a mortgage, we could see a serious knock-on effect further up the property ladder.”

It comes as research by proptech firm Stipendium this week found that the average cost of a mortgage deposit on a first home has climbed by 54% in the past decade.