Yahoo Finance Cut to mortgage deals as lenders panic over unemployment
One of Britain’s largest banks has cut how much it will lend via mortgages in a move that will have wider ramifications for the housing market.
Barclays has reduced the amount a borrower can receive as a multiple of their income. This will apply to new customers and even those already part way through the application process.
Experts said lenders have become increasingly nervous about unemployment – fearing a sharp rise in redundancies and a fall in wages when the Government's income support scheme, known as furlough, comes to an end in October.
As a result, Barclays has slashed how much money it will send to a mortgage applicant as a multiple of their income. Buyers can now only get a mortgage 4.49 times their annual salary, down from 5.5 times.
Cash-strapped first and second-time buyers will be the hardest hit. Those in the largest and most popular towns and cities often find it difficult to purchase a house that cost less than 4.5 times their income.
Nicholas Morrey, of mortgage broker John Charcol, said there were real concerns about the stability of borrowers’ incomes as a result of the economic fallout from the pandemic.
Jonathan Harris, of mortgage broker Forensic Property Finance, said the cut would have ramifications for the whole market and those looking to take on debt and buy a first or larger home.
He said: "If people cannot borrow as much, the property market will slow down."
Belt tightening from mortgage lenders is in sharp contrast to house prices as a whole. This week, Nationwide's index revealed property valuations were at an all-time high.
This was due to pent-up demand built up during lockdown and the Government's cut to stamp duty. Property purchases of more than £150,000 normally attract a 3pc stamp duty charge but the Government waived this until April 2021.
Houses are selling at a rapid rate. The number of homes selling within a week is at a 10-year high, according to property website Rightmove.
However, the market is suffering from a wealth divide. First-time buyers and lower earners, who are younger and therefore most likely to affected by unemployment, have been locked out the market due to tightening mortgage rules.
Experts are predicting a fall in house prices once unemployment starts to rise and the stamp duty cut deadline nears. Lenders have also been unwilling to offer mortgage to those with smaller deposits.
The worry is greatest for those still on furlough, Mr Morrey said. “It’s frustrating but it makes sense. Barclays was one of the only lenders offering loans with high income multiples and it would have got flooded with applicants."
Barclays said mortgage applications submitted from September 4 or those where a material change is made prior to completion will be assessed against these new criteria.
This means that those going back to change the figures on a case that has already been agreed may find themselves with a hole in their numbers and falling short, Martin Stewart of London Money, a mortgage broker, said.
