The pressure on households is continuing to escalate
The cost-of-living crisis has severely impacted the UK and is only predicted to worsen in the coming months, with the expectation that the energy bills price cap will once again rise in October.
Affordability has been significantly affected, not only by the cost-of-living crisis, but also the pandemic and the war in Ukraine, with the latter having an impact on fuel prices.
The pressure on households is continuing to escalate, with figures revealing 3.2 million UK adults, the equivalent of 6% of the UK population, have missed a major bill payment over the last two years due to the pandemic.
Makala Green (pictured), chartered financial expert at TheWealthCheck, said: “The current cost-of-living crisis is arguably the biggest squeeze on living standards in decades.”
Green explained that with soaring energy prices, inflation, and rising interest rates, the negative impact on the mortgage market is not surprising.
As a result of increasing mortgage interest rates, Green believes the market will likely see a reduction in remortgages and further borrowing as many struggle to keep up with their current monthly mortgage payments.
“Those coming to the end of their deals or entering new deals are likely to fix for longer periods, such as five years and beyond,” she added.
Read more: How will borrowers coming off fixed mortgage deals be hit?
The Bank of England has continued to up the base rate, with the latest increase pushing the rate to 1.25%, and further rises expected in the coming reviews by the Monetary Policy Committee (MPC).
As the financial situation for many across the UK worsens, Green explained that lenders will tighten their affordability criteria.
“The significant rise in the cost-of-living is important to homebuyers and will affect their ability to afford a mortgage,” she said.
Green went on to explain that lenders assess affordability by considering what the borrower can afford now as well as in the future, before lending on a property.
“More simply, the lender checks the borrower’s income against expenses, including the mortgage costs, to ensure it does not exceed during the mortgage term,” Green added.
However, with high inflation and high taxes, she outlined that buyers have less room for error when it comes to qualifying for a mortgage.
She believes borrowers will have to boost their deposits, borrow from the bank of Mum and Dad, or wait longer before they can afford to buy.
Read more: Bank of Mum and Dad helping 61% of first-time buyers
However, she did point to a recent change in mortgage rules announced in July 2022 by the Bank of England to say lenders no longer have to check whether homeowners can afford repayments, with mortgage affordability rules to be scrapped.
She believes this could help thousands of people borrow much more to buy their home, although Green noted that this decision is at the lender’s discretion and, therefore, they are not obliged to remove their affordability checks.
Looking to whether buying and selling has started to stall in light of the cost-of-living crisis, Green said she is expecting this to take place eventually.
She explained that there have been years of soaring prices and fierce competition in the housing market due to buying incentives such as the temporary cut in stamp duty and low-interest rates.
“However, considering the cost-of-living crisis, we will likely see house price growth slow down,” Green said.
According to Green, property price hikes in recent years have made buying homes for many unaffordable, and further increases to interest rates, as well as the cost-of-living crisis, will impact buyers eventually.
“The cost-of-living crisis will surely impact the number of properties brought and sold. In its latest market commentary, Rightmove revealed that the combination of affordability constraints and more properties coming on to the market could even result in house prices falling slightly in some months during the second half of 2022,” Green concluded.
