HSBC considering tighter affordability tests due to rising energy bills

The Sunday Telegraph reported that the Bank is considering stricter tests for borrowers in response to the rising cost of living.

HSBC said it wouldn't comment on speculation, but a spokesperson added: "Our mortgage lending decisions are based on affordability. As a responsible lender, we keep our underwriting criteria under review and our affordability models are refreshed regularly, taking in to account key elements of consumer expenditure.

"We would always encourage people to have a healthy relationship with their money and keep an eye on their finances, so when it comes to getting a first mortgage or remortgaging their finances are in good shape."

Colin Bell, COO and co-founder of new long-term fixed rate mortgage provider Perenna, commented: “It's sensible that big lenders like HSBC are considering more stringent affordability tests in the context of increasing energy costs. However, this could have harmful consequences on the most vulnerable customers’ opportunity to refinance. In the worst possible scenario, we could see an increase in mortgage prisoners who end up overpaying for their mortgage while at the same time facing higher energy prices. Lenders will need to factor in higher energy prices, rising inflation and rising interest rates when looking at a consumers’ affordability, which will make mortgage deals harder to secure in 2022 compared to 2021.

“Issues like this are why Perenna is looking to introduce mortgages with fixed monthly payments for up to 30 years. Mortgage repayments are often the highest monthly cost a homeowner faces and protecting them against the cost rising is really important. There's no reason to risk uncertainty, end up on SVR, or overpaying on a mortgage. Homeowners should have this type of security when it comes to mortgage repayments, in order to stay in control of their finances. Long term fixed rate mortgages may also give people the actual funding they need, despite rising bills, as the mortgage itself does not need to be stressed for future interest rate rises.”