HSBC could change mortgage affordability checks to reflect rising energy bills and their detrimental effect on family finances
- Lender is considering stricter tests for borrowers, according to reports
- This may affect the amount of mortgage they can take out
- The gas price crisis has raised the cost of living for many families
- High bills can affect their ability to pay their mortgage
A mortgage lender is considering imposing stricter affordability tests on borrowers in response to the rising cost of living.
HSBC could change the way it calculates how much mortgage families can borrow, according to the Sunday Telegraph.
This will take into account the massive increases in energy bills in recent months, which have led to higher expenditures for many households.
Energy bills have risen dramatically in recent months, adding to the burden on families
This additional cost can affect their ability to pay the mortgage.
The cost of energy bills has skyrocketed over the past few months, due to a global crisis in natural gas supplies.
Energy UK’s chief executive said bills could rise by as much as 50 per cent in the spring, when Ofgem revised its energy price ceiling. It is currently priced at £1,277.
When considering an applicant for a mortgage, banks take into account their monthly income and expenses, including energy bills, to ensure they can make the payments.
They often use an algorithm to determine how much mortgage a customer can afford.
HSBC said it would not comment on the speculation, but a spokesperson added: “Our decisions on mortgage lending are based on affordability.
As a responsible lender, we keep our underwriting criteria under review and our affordability models are regularly updated, taking into account key elements of consumer expenditure.
“We 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 money, we are in good shape.”
HSBC noted the guidance it recently published for customers on 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 subsidy scheme.
She also suggested switching the power supply, although the switching was at a record low.
Currently, many customers will not save any money by doing this, as it is often cheaper to roll back the default tariff than to sign up for a fixed deal with a new supplier.
This is because the default tariffs are protected by the Ofgem price cap.
Although it is not clear what stricter lending criteria HSBC may take, the tightening of regulations could 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 hike stress test that banks must impose on mortgage borrowers, which would make it easier to get a bigger loan.
The bank will consult on repealing the rule requiring applicants – whatever the initial rate they apply for – to demonstrate their ability to pay a higher standard variable rate of interest to their lenders, plus 3 percent.
The affordability test, also known as the bounce rate, is designed to verify that borrowers can still make mortgage payments if the rate goes up.
Mortgage experts warned that doing so would push home prices higher than they already are.