Ofgem’s confirmation that the energy cap will rise from £1,971 to £3,549 a year from October has caused dismay among many in the mortgage industry.
Apart from immediate concerns about staying warm this winter, brokers fear affordability ratings will be significantly affected, making it harder for people to buy a home.
For example, Dimora Mortgages director Jamie Lennox said his company has seen this happen before, noting that “10 days ago we checked the affordability of a lender and to date they are now offering £8,000 less on the maximum people can borrow.
He is one of many voices saying that Energy Performance Certificate (EPC) ratings are likely to become more important to potential buyers. “Some will end up ruling out the move or ignoring an entire type of property deemed less energy efficient,” he says.
And Shaw Financial Services founder Lewis Shaw comments: “Anyone thinking of selling may want to spend a little money to boost their EPC rating to get the best price and make their property more sought after.”
Scott-Taylor-Barr, financial services adviser to Carl Summers, provides some insight into how affordability models could change: “Some lenders use data from the Office for National Statistics (ONS) to determine spending in their affordability models; these lenders will likely see a reduction in the maximum loans any given income can generate as rising energy costs filter through from ONS data.
“Other lenders require the broker to capture this data from the figures on the client’s bank statements – this means that those who are particularly frugal with their energy may be less disadvantaged in terms of mortgage size than they may be. generate with this type of lender, than one that uses ONS data.
“Brokers will have a good idea of which lenders are using which type of model, as well as software that can compare affordability models from multiple lenders at once, allowing them to guide their clients to the best results for their individual situations. .”
Shaw believes that as a result of the price cap change, house prices will be “stopped and possibly down” – as SelfEmployedMortgageHub director Graham Cox puts it: “With mortgage costs also soaring , there is only one direction for property prices and it is not up.”
Meanwhile, Peak Money chief executive Rhys Schofield said that while affordability ratings will be affected, “If anything…I see it keeping mortgage brokers busy. “
He explains, “The reality is that many people just won’t be able to stomach the increased energy costs on top of the higher rates at mortgage time, which will force many to sell and downsize.
“It is imperative that customers who are coming to the end of a flat rate start planning six months in order to get a new rate or figure out how they will cut their fabric accordingly.”