Increased mortgage costs have also meant that in some cases, people are having to put of life choices like fertility treatment, in order to cover their mortgage costs, with potentially huge knock-on effects.
But what does inflation have to do with mortgage rates? This article outlines how the cost of living being on the rise could affect those with mortgages.
Will the cost of living rising affect the amount an individual can borrow?
It is possible that the increase in living costs combined with contributions to National Insurance could impact the amount an individual looking to take out a mortgage could borrow, as costs of everyday prices rising means that there will be less available income on a monthly basis.
The energy price cap has also been seen to increase in recent months, with increases in Council Tax, National Insurance rates and the price of fuel meaning many families will be prioritizing their spending.
Why will the cost of living affect how much an individual can borrow?
The cost of living may affect the likelihood that an applicant will be able to borrow a mortgage as lenders will make calculations based on income, spending habits and overall debts.
Higher household bills, fuel prices and overall inflation means that most people will now be spending more money each month without even thinking about it. As a consequence, lenders will be able to see that applicants have less income available with which they can pay off their mortgage, and may therefore be willing to lend less money.
More people are also finding that they need a payday loan or other short term finance option to get through some months; covering their ongoing costs.
In spite of this, some lenders will be able to see that many people cannot help the global inflation levels and may therefore make allowances when it comes to mortgages.
What are stress rates?
Stress rates are rates that are applied by the lender during the mortgage application process. These rates ensure that applicants would still be able to make their mortgage repayments if inflation was on the rise again. As the cost of living is rising, lenders will have to raise their stress rates to ensure that mortgage repayments can still be made.
The stress rate will be made clear by the lender when an individual applies for a mortgage, and the calculations will be made based on an applicant’s income and financial situation alongside the cost of living and potential inflation rates.
How low are mortgage rates now?
There are still competitive mortgage rates available in spite of the rising cost of living. Those looking for a mortgage should consider which mortgage, lender and property would be the most ideal for them with the cost of living now at an all time high.
It may also be possible to remortgage a property if necessary in order to become more financially stable. It is worth exploring the available options to have more financial freedom, and possibly spend additional money prioritizing the rising costs of household bills and fuel prices.