HSBC could change mortgage affordability checks to reflect rising cost of energy bills and its detrimental impact on household finances
- Lender considering stricter tests for borrowers, according to reports
- This could affect the size of the mortgage they can borrow
- Gas price crisis has driven up cost of living for many households
- Higher bills could potentially affect their ability to pay a mortgage
A major mortgage lender is considering imposing stricter affordability tests on borrowers in response to the rising cost of living.
HSBC could alter the way it calculates the size of the mortgage households are able to borrow, according to the Sunday Telegraph.
This would take into account the huge rises in energy bills in recent months, which have driven up outgoings for many households.
Energy bills have risen significantly in recent months, increasing the burden on households
This additional cost could potentially affect their ability to pay a mortgage.
The cost of energy bills has risen hugely over the past few months, due to a global crisis in the supply of natural gas.
The chief executive of Energy UK has said that bills could rise by as much as 50 per cent in the spring, when Ofgem will review its energy price cap. It currently sits at £1,277.
When considering an applicant for a mortgage, banks take into account their monthly income and outgoings, including energy bills, to make sure they can afford the repayments.
They often use an algorithm to determine what size mortgage a customer can afford.
HSBC said it would not comment on speculation, but a spokesman added: ‘Our mortgage lending decisions are based on affordability.
‘As a responsible lender, we keep our underwriting criteria under review and our affordability models are refreshed regularly, taking in to account key elements of consumer expenditure.
‘We would always encourage people to have a healthy relationship with their money and keep an eye on their finances, so when it comes to getting a first mortgage or remortgaging their finances are in good shape.’
HSBC pointed to guidance it recently published for customers regarding how to save money on their energy bills.
In a post on its website, the bank suggested that customers could get a smart meter or apply for a government support scheme.
It also suggested switching energy supplier, despite switching being at a record low.
At present, many customers will not save any money by doing this, as dropping on to a default tariff is often cheaper than signing up to a fixed deal with a new supplier.
This is because default tariffs are protected by Ofgem’s price cap.
Although it is not clear what HSBC’s potential stricter lending criteria might be, tightening regulations would appear to be at odds with recent plans from the Bank of England.
In December, it announced that it would consult on whether to remove the rate rise stress test that banks must impose on mortgage borrowers, which would make it easier to get a bigger loan.
The Bank will consult on scrapping the rule which requires applicants – whatever the initial rate they are applying for – to prove they could pay their lenders’ higher standard variable rate of interest, plus 3 per cent.
The affordability test, also known as a reversion rate, is designed to check that borrowers could still meet their mortgage payments in the event of a rate rise.
Mortgage experts have warned that doing so would also send house prices even higher than they are already.