UK Edition
Halifax has relaxed mortgage borrowing rules for millions of wealthy homebuyers in a bet that the property market will remain resilient despite the threat of rising interest rates.
Britain’s biggest housing lender will now hand borrowers who earn more than £75,000 a loan of up to five-and-a-half times their annual income, up from a previous limit of five times.
Analysts said the decision was a sign that Halifax is not expecting house prices to fall if the Bank of England acts to containing rising inflation, with Threadneedle Street expected to increase interest rates as soon as next month.
Lenders have also started to pull the cheapest mortgage deals off the market in an effort to get ahead of the rate increase.
Andrew Wishart, an analyst at Capital Economics, said that although the moves might seem contradictory, in fact they show that lenders were not concerned about the market.
He said: “Banks bolstered their profit margins when the base rate fell to 0.1pc and house prices didn’t fall, as they expected. This has kept lenders confident in the face of interest rate increases.”
More lenders are likely to follow suit by relaxing income rules, he added.
The gap between house prices and incomes has soared in the wake of the Covid crisis, which triggered a property boom fuelled by Rishi Sunak’s temporary cut to stamp duty and a stampede for green space by locked-down families.
Halifax’s own data shows the average home now costs eight times the average wage, the biggest gap since it started collecting records in 2011.
The shifts now taking place in the market are likely to benefit the wealthy, while those reliant on an ultra-cheap mortgage will suffer.
The number of fixed-rate sub-1pc mortgages has fallen from 131 to 116 in the past two weeks, according to data from Moneyfacts.
A two-year fixed from Platform, part of the Co-operative Bank, cost 0.79pc last month and was the cheapest of its kind in Britain. However, the bank now charges 1.08pc.
Barclays has increased the rate of a three-year fixed-rate mortgage from 0.99pc to 1.1pc while a two-year fix increased from 0.86pc to 0.91pc. NatWest and HSBC have made two and five-year fixed rate deals more expensive.
Mortgage costs are expected to soar at a rate not seen since before the financial crisis as the Bank puts up rates, hitting households already faced with spiralling bills.
If the interest rate on the average two-year fixed rate mortgage rose by 0.5 percentage points to 1.7pc by the end of next year, it would add £50 a month to the cost of paying off a £200,000 mortgage.
David Hollingworth, of mortgage broker L&C, said: “The changes right now might be relatively small, but it definitely signals the direction of travel for lenders and pricing.
“Borrowers who were holding off fixing [their mortgages], waiting for the next big drop in prices, should act now as it is now inevitable costs will rise.
“The market is still competitive but rising swap rates have meant there is no doubt interest rates offered to borrowers will not stay this cheap for long.”
Swap rates determine how much banks charge for fixed-rate mortgages and represent the rate at which lenders themselves can borrow. The rates have steadily climbed this year and are normally passed on to homeowners.
Rising debt costs have not been isolated to the residential mortgage market. The threat of interest rate rises has also spooked lenders into increasing prices and pulling deals for landlords sooner than expected.
In the past five days, banks and building societies have already pushed up prices of loans - in some cases by more than 1 percentage point.
Landlords have enjoyed months of price cuts as banks and building societies competed for business, with the cheapest rate falling below 1pc.
Nottingham Building Society pushed up the cost of some of its buy-to-let mortgages by more than one percentage point this week, with a two-year fix rising from 1.55pc to 2.74pc and a five-year fix jumping from 2pc to 3.06pc.
Godiva Mortgages, the buy-to-let arm of Coventry Building Society and a large player in the sector, increased the rates on all its landlord deals, with one rising 0.36 percentage points to 2.85pc.
Angus Stewart, of buy-to-let broker Property Master, warned the “tide was turning”, adding that banks were increasingly hiking their rates and withdrawing mortgages from the market.