Confirmation from Ofgem that the energy cap will be raised from £1,971 to £3,549 a year from October has been met with dismay by many in the mortgage industry.
Outside of immediate concerns for staying warm this winter, brokers are concerned that affordability assessments with be significantly affected, making it more difficult for people to buy a home.
For example, Dimora Mortgages director Jamie Lennox says his firm has already see this happen, detailing that, “10 days ago we checked affordability with one lender and, as of today, they are now offering £8,000 less on the maximum people can borrow.
He is one of many voices who say that Energy Performance Certificate (EPC) ratings will likely become more important to prospective buyers. “Some will end up ruling out moving house or ignore a whole type of property that are deemed less energy efficient,” he says.
And Shaw Financial Services founder Lewis Shaw comments: “Anyone thinking about selling may want to spend a little money upping their EPC rating to achieve top dollar and make their property more sought after.”
Carl Summers Financial Services adviser Scott-Taylor-Barr provides some insight into how affordably models might change: “Some lenders use data from the Office for National Statistics (ONS) to drive the outgoings in their affordability models; these lenders will likely see reduction in the maximum loans that any given income can generate as the increased energy costs filter through from the ONS data.
“Other lenders ask the broker to enter this data from the figures on the client’s bank statements – this means that those who are especially frugal with their energy may be less disadvantaged in terms of the size mortgage they can generate with this type of lender, than one that uses ONS data.
“Brokers will have a good idea of which lenders use which type of model, as well as having software that can compare multiple lenders’ affordability models at once, allowing them to guide their clients to the best outcomes for their individual situations.”
Shaw believes that as a result of price cap change, house prices will be “arrested and possibly dip” – as does SelfEmployedMortgageHub director Graham Cox: “With mortgage costs also soaring, there’s only one direction for house prices to go and it’s not up.”
Meanwhile, Peak Money managing director Rhys Schofield says that, while affordability assessments will be impacted, “If anything… I see this keeping mortgage brokers very busy.”
He explains: “The reality is that a lot of people simply won’t be able to swallow increased energy costs on top of higher rates come remortgage time, which will force many to sell and downsize.
“It’s imperative that customers coming to the end of a fixed rate start planning six months out in order to secure a new rate or work out how they are going to cut their cloth accordingly.”
