As banks fear soaring energy prices will hammer borrowers… Halifax’s big idea to keep mortgages booming: larger loan if you’ve got a greener home
Halifax is launching a ‘green test’ that will mean struggling borrowers with energy-efficient homes can access larger mortgages, The Mail on Sunday can reveal.
The test means the lender, part of Lloyds Banking Group, will be able to examine whether buyers of ‘green’ homes may have extra disposable income because their energy bills will be lower. Evidence of the surplus monthly cash could help them qualify for a mortgage to get them on to the housing ladder or move to a bigger home.
The initiative comes as banks scramble to find safe ways of lending to borrowers who are coming under pressure from surging energy bills and soaring inflation, which last week reached its highest level in three decades.
Looking ahead: Halifax is launching a ‘green test’ that will mean struggling borrowers with energy-efficient homes can access larger mortgages
Banks are wary of lending to borrowers who may not be able to keep making loan repayments if the cost of living rockets. All banks still limit the amount customers can borrow based on their income, often to four or five times their annual salary.
It is understood the ‘green test’ is designed for hard-pressed borrowers who might scrape through the bank’s affordability test, giving them a greater chance of being able to borrow more.
Homes are given an ‘energy performance certificate’ with ratings from A to G depending on the property’s energy efficiency. Efficient homes with an A or B rating – which includes more than 80 per cent of homes built last year – will fare better on the bank’s ‘green test’ than households facing high gas bills.
Ray Boulger, technical manager at mortgage broker John Charcol, said: ‘If you’ve got lower heating costs, it could mean you can get a larger loan on the basis that your monthly costs are less. The people who will benefit from this initiative are those with higher financial commitments.’
Households are facing a huge jump in energy bills from April when the energy price cap is expected to rise by 50 per cent – adding about £600 a year to the average annual bill. Emma Pinchbeck, chief executive of trade body Energy UK, warned last week that bills could go up again in October by at least another 20 per cent.
The Social Market Foundation has urged Chancellor Rishi Sunak to give people a ‘cost of living bonus’ to help combat soaring inflation and sky-high energy bills. The Government is examining a range of options to assuage what has been dubbed ‘the cost of living crisis’, including loans to energy firms.
The Halifax initiative is part of a push by banks to adjust their affordability criteria so customers can still borrow but without taking on too much risk.
The rise in the Bank of England base rate last month has led to banks increasing their ‘stress test’ rate, to check borrowers can pay their standard variable interest rate plus three percentage points. TSB wrote to brokers last week noting it had increased its stress test by 0.15 of a percentage point, in line with the base rate rise.
Interest rates on mortgages are also rising across the board. Data from comparison site Moneyfacts show that interest rates have gone up on five-year fixed rate deals, from an average of 2.66 per cent at the start of the year to 2.7 per cent. The average rate on three-year fixed loans has gone up from 2.32 per cent to 2.47 per cent.
Signs are emerging that banks are wary of taking on too many risky new loans. A source close to Barclays said the lender had increased rates on some products and removed others to ‘stem the flow’ of loans. But some banks are offering better rates in certain segments of the market where they want to increase lending.
Last week, HSBC cut rates on five-year fixed-rate deals at 90 per cent loan-to-value to 2.19 per cent. It has also brought back a sub 1 per cent mortgage rate on a two-year tracker deal, but only for 60 per cent loan-to-value deals – that is where the borrower has 40 per cent equity in the property.
Bank of England Governor Andrew Bailey told MPs last week that higher inflation could last longer than many forecasters had anticipated. Some economists now believe the base rate could rise from its current 0.25 per cent to 1.25 per cent by November.
Global demand and supply chain woes are likely to continue, exacerbating food price increases. Goldman Sachs bank has warned that strong wage growth and higher prices could lead to spiralling inflationary pressures, putting a further squeeze on living standards.
Steve Webb, a partner at consultancy LCP and a former Pensions Minister, warned that older people would be especially hard hit. He said: ‘In addition to the rising cost of the weekly shop or filling a car with petrol, pensioners are likely to be particularly hard hit by a hike in council tax bills in April and by the surge in energy costs.
‘Elderly pensioners are likely to be particularly hard hit, as they may have the heating on for most of the day. The planned State Pension increase of just 3.1 per cent is nowhere near the true increase in the cost of living which most pensioners will face this year.
‘Unless further action is taken, millions of pensioners will face a real financial squeeze and will be forced to cut back on essentials just at a time in their life when they should be able to relax and enjoy themselves.’