Bank of England governor encourages new mortgage applicants to be 'prudent'
The Governor of the Bank of England has urged new mortgage borrowers to think carefully about the cost of their new loan, in light of the economic uncertainty gripping the UK.
Mark Carney has warned mortgage customers to proceed carefully and to think hard about the level of borrowing they can afford.
Consider the affordability of your mortgage
Following the outcome of the EU referendum, the Bank of England supported the banks by releasing an additional £150bn in funds to ensure that the supply of credit did not dry up. Now, the bank's Governor has suggested that borrowers should think carefully about the level of mortgage they agree to.
"We are advising people to be prudent," said Carney. “If you are taking out a mortgage, at some stage, during the life of that mortgage, conditions will be difficult. You want to be able to ensure that you can service that mortgage even if times are tough, so think about where interest rates will go, where wages will go in the lifetime of that mortgage."
Changes to the mortgage market in 2014 were designed to ensure that banks and building societies more closely analysed borrower affordability before agreeing a home loan. Mr Carney has underlined this point by suggesting that prospective buyers should make sure they will be able to continue to afford their mortgage should there be significant changes to their circumstances or the wider economy.
"It's not a statement to say, 'Don't engage with the market'," says Adam Challis, head of residential research at the property group JLL. "Mark Carney is saying that now would not be a prudent time to maximise the mortgage that you can possible afford. Now is the time to act within more conservative lending trends and it is important to consider how those terms might change over the next few years. Could you still afford the home that you’re looking at?"
First-time buyers often hit by affordability issues
First-time buyers are often most at risk of failing to keep up their mortgage repayments as they take higher loan-to-value loans and have fewer financial assets in place to protect themselves against increases in their monthly repayments.
Although they also tend to have fewer financial commitments or dependents, the Daily Telegraph says that they are “the more exposed group in comparison with current homeowners who will have built up a proportion of equity they can use as insulation”.
However, while Mr Carney has encouraged caution, interest rates remaining low meaning that borrowers can still take advantage of cheap mortgage deals.
Challis adds: "What Mr Carney is rightly trying to say to your average aspirant homeowner is that they should think more fully about protecting themselves from the potential of the downside risks, such as loss of a job, stagnant wages or a decline in the property market."