This weekend the governor Mark Carney warned that the housing market poses the biggest risk to Britain's economic recovery as a shortage of new homes drives up prices.
He said the Bank of England was watching to ensure that banks had enough reserves to withstand the risks of bad loans should the housing market suffer a downturn and is also checking lending procedures to try to ensure that mortgages were only issued to people who could afford them.
He claimed that there was evidence that large value mortgages with loans of more than four times a borrower's salary were on the rise again. ‘We would be concerned if there were a rapid increase in high loan to value mortgages across the banks. We have seen that creeping up and it is something we are watching closely,’ he added.
But a survey conducted before Carney’s comments show that home owners are aware that interest rates could mean their mortgages costing more.
Some 62% of home owners surveyed by online credit information provider Equifax said that they think lenders will increase their mortgage rates over the next six months but only one in 10 said that they are planning to remortgage in the next six months to reduce the risk of their monthly repayments going up should there be a rate rise.
According to Andrew Webb, head of Equifax Personal Solutions, this could be because many have fixed rate deals that will protect them in the short term. ‘But, with new affordability rules now in place, it’s important that homeowners plan ahead for when they are looking to change their mortgage. Their credit information, along with their spending behaviour on an assortment of other outgoings, will be scrutinised much more closely by lenders than it has in the past,’ he explained.
When asked what types of information they think will be considered as part of mortgage applications as a result of the new affordability rules, there was a relatively good awareness amongst the home owners surveyed by Equifax that lenders would want to have a much better understanding of all types of spending as well as income.
Nearly two thirds, 65%, expect their utility bills and council tax to be taken into account in the assessment process and over half expect childcare costs such as nursery fees and child minders to be considered. Some 48% expect their mobile phone bills to be examined and 48% also expect to be asked about any long term changes to their income and retirement plans.
‘Home owners may well find it useful to look at their credit report six months or so ahead of making applications for a new mortgage, to gain an overview of their financial commitments and enable them to prioritise some payments and make savings on outgoings,’ said Webb.
