Get a bigger mortgage if you have a greener home, says Halifax
As banks fear soaring energy prices will hit borrowers… Halifax’s big idea to keep mortgages booming: Bigger loan if you have a greener home
Halifax is launching a ‘green test’ which means borrowers struggling with energy-efficient homes can access bigger mortgages, The Mail on Sunday can reveal.
The test means the lender, which is part of Lloyds Banking Group, will be able to consider whether buyers of ‘green’ homes can have extra disposable income because their energy bills will be lower. Proof of monthly cash surplus could help them qualify for a mortgage to move them up the housing ladder or move to a larger home.
The move comes as banks scramble to find safe ways to lend to borrowers who are under pressure from rising energy bills and soaring inflation, which last week hit its highest high level in three decades.
Looking ahead: Halifax launches ‘green test’ which means borrowers struggling with energy-efficient homes can access bigger mortgages
Banks are reluctant to lend to borrowers who may not be able to continue repaying their loans if the cost of living skyrockets. 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 that the ‘green test’ is designed for struggling borrowers who could pass the bank’s affordability test, giving them a greater chance of being able to borrow more.
Homes receive an “energy performance certificate” with grades from A to G based on the energy efficiency of the property. Energy-efficient homes with an A or B rating – which includes more than 80% of homes built in the last year – will fare better on the bank’s “green test” than households facing high gas bills.
Ray Boulger, technical director at mortgage broker John Charcol, said: “If you have lower heating costs it could mean you can get a bigger loan on the basis that your monthly costs are lower. The people who will benefit from this initiative are those with larger financial commitments.
Households are facing a huge rise in their energy bills from April, when the energy price cap is set to rise by 50%, adding around £600 a year to the average annual bill. Emma Pinchbeck, chief executive of trade body Energy UK, warned last week that bills could rise further in October by at least another 20%.
The Social Market Foundation has urged Chancellor Rishi Sunak to give people a ‘cost of living bonus’ to help tackle soaring inflation and sky-high energy bills. The government is looking at a range of options to ease what has been dubbed ‘the cost of living crisis’, including loans to energy companies.
The Halifax initiative is part of a push by banks to adjust their affordability criteria so customers can still borrow but without taking too much risk.
The Bank of England’s base rate hike last month led banks to raise their “stress test” rate, to check that borrowers can pay their standard variable interest rate plus three percentage points. The TSB wrote to brokers last week to report that it had raised its stress test by 0.15 percentage points in line with the rise in the base rate.
Mortgage interest rates are also rising across the board. Data from comparison site Moneyfacts shows that interest rates have risen on five-year fixed-rate contracts, from an average of 2.66% at the start of the year to 2.7%. The average three-year fixed loan rate rose from 2.32% to 2.47%.
Signs are emerging that banks are reluctant to take on too many risky new loans. A source close to Barclays said the lender had raised rates on some products and cut others to “stem the flow” of loans. But some banks offer better rates in certain segments of the market where they want to increase lending.
Last week, HSBC cut rates on five-year fixed-rate contracts at 90% of the loan-to-value ratio to 2.19%. It also cut a mortgage rate below 1% on a follow-on two-year deal, but only for 60% loan deals – that is, when the borrower has 40% equity. clean in the property.
Bank of England Governor Andrew Bailey told MPs last week that higher inflation could last longer than many forecasters had expected. Some economists now believe the base rate could drop from its current level of 0.25% to 1.25% by November.
Global demand and supply chain challenges are expected to continue, aggravating higher food prices. Goldman Sachs bank warned that strong wage growth and higher prices could lead to soaring inflationary pressures, which would put further pressure on living standards.
Steve Webb, a partner at consultancy LCP and a former pensions minister, warned older people would be particularly affected. He said: ‘As well as the rising cost of the weekly shop or filling a car with petrol, retirees are likely to be particularly hard hit by a rise in municipal tax bills in April and the soaring energy costs.
“Older pensioners are likely to be particularly affected, as they may have the heating on for most of the day. The planned state pension increase of just 3.1% is a far cry from the real cost of living increase that most pensioners will face this year.
“Unless further action is taken, millions of retirees will face real financial pressure and be forced to cut back on essentials just at a time in their lives when they should be able to relax and enjoy themselves.”