By Adele Cooke For The Daily Mail
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Homeowners are being forced to prove they can afford mortgage rates of up to 8 per cent as lenders tighten their stress tests.
Banking giant TSB became the first High Street name to announce it was boosting its affordability checks yesterday amid concerns the Bank of England could hike its base rate to 6 per cent.
Brokers warn that other banks will follow suit as some say they are already seeing more borrowers being rejected for poor credit scores.
Stress tests: TSB became the first High Street name to announce it was boosting its affordability checks amid concerns the Bank of England could hike its base rate to 6%
It comes after figures showed mortgage rates had jumped by a whole percentage point in the ten days after the Chancellor’s mini-Budget.
Yesterday, TSB confirmed it was increasing its stress tests to 8 per cent for existing homeowners and 7 per cent for first-time buyers.
David Hollingworth, of mortgage broker London & Country, says: ‘Not every lender publishes what level they are stress-testing borrowers at, but TSB won’t be the only one. In the future, stress-testing will inevitably have to take into account higher interest rates and higher cost of living.’
Chris Sykes, technical director of Private Finance, says: ‘Recently we have noticed an abnormal amount of credit score declines from lenders.
‘In light of rising interest rates, it could be the case that they are being stricter with credit scores and ensuring borrowers can repay their loans.’
The average two-year fixed-rate mortgage is now 5.97 per cent — the highest level in 14 years, according to analysts at Moneyfacts. It is likely to top 6 per cent in the coming days.
Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, have been urged to act but not to panic, writes This is Money editor Simon Lambert.
Banks and building societies are still lending and mortgages are still on offer with applications being accepted.
Rates are changing rapidly, however, and there is no guarantee that deals will last and not be replaced with mortgages charging higher rates.
This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value
What if I need to remortgage?
Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate.
Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal.
Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.
What if I am buying a home?
Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be.
Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to higher mortgage rates limiting people’s borrowing ability.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.
You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.
Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.
> Check the best fixed rate mortgages you could apply for
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