As the Bank of England announces the parameters for its new stress tests on the impact of interest rate rises for mortgage lenders, new research from Equifax, the leading online credit information provider, reveals that homeowners are already anticipating an increase in mortgage rates before the end of the year.
Almost two thirds (62 per cent) of homeowners surveyed by Equifax ahead of the introduction of the Mortgage Market Review last weekend said that they think lenders will increase their mortgage rates over the next six months.
Interestingly, though, only 1 in 10 said that they are planning to remortgage in the next 6 months to reduce the risk of their monthly repayments going up should there be a rate rise.
“Conducted amongst consumers who have obtained a copy of their Equifax credit report, our research suggests that many homeowners think a mortgage rate rise could happen in the next six months” explained Andrew Webb, head of Equifax Personal Solutions. “Although, surprisingly, whilst many homeowners believe a rate rise could be on the horizon, only just over 1 in 10 (11%) actually have plans for remortgaging at the moment.
“This could, of course, be because many have fixed rate deals that will protect them in the short term. But, with new affordability rules now in place, it’s important that homeowners plan ahead for when they are looking to change their mortgage. Their credit information, along with their spending behaviour on an assortment of other outgoings, will be scrutinised much more closely by lenders than it has in the past.”
When asked what types of information they think will be considered as part of mortgage applications as a result of the new affordability rules, there was a relatively good awareness amongst the homeowners surveyed by Equifax that lenders would want to have a much better understanding of all types of spending as well as income. Nearly two thirds (65%) expect their utility bills and council tax to be taken into account in the assessment process and over half expect childcare costs such as nursery fees and child minders to be considered. Nearly half (48%) expect their mobile phone bills to be examined.
Nearly half (48%) also expect to be asked about any long-term changes to their income and retirement plans.
Perhaps reflecting the level of detail that lenders will seek when assessing mortgage applications, the personal touch is the preferred route for the majority of homeowners, whether it’s applying in person at their bank or building society (39%), or using an independent financial adviser (30%) to assist with the application. There’s also a recognition of the importance of their credit information in the application process, with just over three quarters saying they have already or will obtain a copy of their credit report before they apply for a new mortgage.
“With over three quarters (77%) of respondents to our research saying that they think it will become harder to obtain a mortgage in the future, it’s absolutely essential that people think about their finances and credit information well ahead of making new applications” concluded Andrew Webb.
“Homeowners may well find it useful to look at their credit report six months or so ahead of making applications for a new mortgage, to gain an overview of their financial commitments and enable them to prioritise some payments and make savings on outgoings.”
The Equifax Credit Report is accessible for 30 days free simply by logging onto www.equifax.co.uk/Products/credit/credit-report. If customers do not cancel before the end of the 30 Day Free Trial, the service will continue at £9.95 per month, giving them unlimited online access to their credit information and weekly alerts on any changes to their credit file. It also includes an online dispute facility to help them correct any errors on their credit file simply and quickly.