MBT Affordability Insights: Assessing the impact of interest rate rises

Mortgage Broker Tools assesses how the impact of higher rates has translated into changes to mortgage affordability.

Related topics:  Blogs,  Mortgages
By | Mortgage Broker Tools
3rd February 2023
house with percentage sign
"Even a salary of £62k per year is still not large enough to be unaffected by the higher stress rates."

Now that the market has had time to settle since the rapid rate rises of early Autumn, it’s worth considering how the impact of higher rates has translated into changes to mortgage affordability.

Residential stress rates are often above 8% at the moment and tighter affordability calculations, of course, affect borrowers on lower incomes more than those on higher incomes. But where is the cut off? Is there an income level that provides a tipping point into more generous affordability calculations?

A recent case on MBT illustrated that even a salary of £62k per year is still not large enough to be unaffected by the higher stress rates.

The case was very straightforward. A first-time buyer, requesting a £290k loan at 83% LTV on a 35-year term. They had a £355 car finance commitment, but no other debt.

If a broker were to have run this case through MBT Affordability on 7th September last year, they would have found affordable options from 38 lenders able to provide the loan size requested by the client, with the highest loan size available being £315,653. The lowest available loan was £202,170.

Spring forward to January 2023 and the situation has changed significantly. There are only 8 lenders happy to lend the client the £290k required or more and the highest available loan is now reduced to £309,765. The lowest loan size offered to the client has fallen to £192,860.

The other important factor to consider is that in September, six 'major' lenders were happy to lend the required amount to the client. Now this is down to 4, and only 2 lenders are in both those lists.

Whilst we all expected mortgage affordability to be squeezed as a result of recent events, it’s unlikely that anyone expected this type of straightforward case for a high earning client to have been impacted quite so much. Of the original 38 lenders to provide options for the client in September 20 now show different results, with 16 of these offering lower figures and only 4 offering increased loan sizes.

One lender has reduced its affordability calculation by £69,563 and 5 of the top 12 lenders show a reduction of more than £20k.

Brokers will, of course, have to recalculate the numbers for many clients who may have made initial enquiries many months ago and they may need to have difficult conversations managing expectations for those who were previously quoted higher figures.

The most efficient way for brokers to undertake those calculations is through an affordability and criteria research platform, like MBT Affordability. This approach will also ensure brokers give their clients the best chance of achieving the loan size they need, by researching calculations from more than 40 residential lenders and 65 buy-to-let lenders, all from one easy-to-use form.

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