Warning - new checks on mortgage applications could hit house hunters

A property expert has predicted that mortgage applicants are likely to find it 'much harder' to be approved for loans as the cost of living crisis causes banks to tighten their belts and err on the side of caution.

Jonathan Rolande, director of House Buy Fast and founder member of the National Association of Property Buyers, says the current issues with inflation and rising bills is set to result in lenders introducing tighter and more stringent checks on those applying for home loans.

Rolande's comments come just days after well-known high street bank Santander became the latest to announce they were changing lending criteria.

"We should expect other banks to follow in Santander’s footsteps," he said. "Responsible lending is vital to the health of the property market and it is easy to see why lenders are changing criteria thanks to the huge increase in living expenses we all face."

"Many homeowners may now find themselves in a similar position to tenants who ‘didn’t earn enough’ to buy but paid far more in rent than a mortgage for the same property. Owners may not be able to re-mortgage to reduce their monthly outgoings because of a shortfall in disposable income after increased bills are paid."

He added: "With interest rate rises also widely predicted, a chat with a bank or broker as soon as possible is recommended to see if a mortgage is at the best rate. Self-employed people, particularly those who run as a Limited Company, are especially at risk as many pay themselves a low wage or dividend to keep taxes low.”

Banks have already started to implement more stringent 'stress tests' on lending as interest rates increase, with these tests designed to check if borrowers can afford a standard variable rate plus 3%. Tougher affordability checks and heightened stress tests could hit house prices, which have remained remarkably resilient in the face of Brexit, Covid-19 and now the war in Ukraine and the cost of living crisis in Britain.

According to Halifax, the average house price hit a record £282,753 in March, a tenth higher than the previous year. This marked the biggest annual leap since the financial crisis.

"Mortgage brokers have warned that soaring energy bills, tax rises, and the surging cost of goods have prompted banks to tighten their mortgage affordability tests - making it harder to borrow as much," Rolande said.

"Last week, Santander made it tougher for borrowers to meet its lending criteria because it told brokers it would reflect the rises in household bills, National Insurance and taxes."

Reports elsewhere have claimed that the largest high street banks - HSBC, Barclays, Lloyds Banking Group and NatWest - are all considering similar moves, with experts believing the 'punitive checks' will make it more difficult to take out larger loans - meaning many people are at risk of being unable to purchase their desired home.