Is mortgage lending tightening? What’s caused it and how can specialist finance help?

mortgage lending tightening

Despite there being demand for property in the current market, investors are facing up against a challenging set of circumstances. A shortfall of options is creating a “frenzied” rental market according to surveyors. Meanwhile, on the homeownership side of things, first-time buyers recently emerged as a surprising source of activity, preventing prices from plummeting.

What’s more, recent evidence suggest activity in the market has returned to levels that rival pre-Covid. Participants have adapted – shaking off much of the pandemic’s damage.

Yet, many property investors are still being held back. The latest RICS residential survey highlighted sales, new listings, and house prices are struggling against a “weak market backdrop”. While there’s many reasons for this, a tighter lending environment is likely the common denominator for all property investors at the moment. From single homeowners, through to portfolio landlords.

What’s causing this, and why is mortgage lending tightening? To provide you with some answers to these questions, along with what may be on the horizon, this blog will break down everything you need to know.

Source: BBC, The Telegraph, Property Reporter, Financial Reporter

What’s forced mortgage lending to tighten?

Generally, many lenders are anxious. The future looks uncertain. It can be hard to offer a mortgage product created with decades in mind when the next couple of years alone are hard to quantify.

Many different elements came together at once to add to this uncertainty. The cost-of-living crisis, war in Ukraine, base rate hikes, and more all created a difficult economy to operate in. Arguably though, September’s mini-Budget had the biggest impact of all.

Mike Cook, our Chief Mortgage Officer, put it in layman’s terms: “After Liz Truss’ disastrous miscalculation, the market and a lot of funders were spooked. Smaller lenders – and we see more and more of this – still look ahead with a large lending and credit appetite.

“But the reality is they don’t have a lot of funding behind them. It forces them to be picky behind the scenes. This is why having multiple institutional funding lines behind us is such a strength for MFS. We never stopped lending throughout this period, even as high street banks retreated from the market.”

Indeed, almost overnight, mortgage providers pulled hundreds of deals from the shelves as panic set in. For many, is mortgage lending tightening became less of an important question than where can deals be found in the first place.

What’s more, to reflect the continued uncertainty, the mortgages that remained became especially costly and unobtainable for many. Many lenders hiked rates on both their residential and Buy-to-Let mortgages with barely any notice.

hesitancy by high street lenders

Declining house prices and rising costs

Mike also noted house price “wobbles” likely made lenders – and their credit risk executives – worry about mortgage affordability. Since September, on average, property prices across the UK have been in marginal decline, according to Land Registry data. This bucked the trend of rising prices we saw in the months leading up to September, jumping by around £20,000.

And while property prices began to marginally decline, other costs started to rise. Base rate hikes, an energy crisis, and runaway inflation dominated the 2nd half of 2022. Mainstream lenders likely became increasingly worried about customers repaying their loans at all – especially their BTL mortgages.

When addressing the question of is mortgage lending tightening, you’ll want to think about rental income and interest rates. Generally, lenders assess affordability for BTL mortgages by comparing gross rental incomes with interest payments via an interest coverage ratio (ICR). As such, where mortgage costs rise, landlords need to raise rent accordingly. Banks typically need an ICR of between 125% and 145%.

But, as we saw sharp rises in mortgage rates, ICR calculations were skewed. Mortgage rates rose, but rents didn’t keep pace, according to analysis from Carl Summers Financial Services.

Since September 2022, there has been somewhat of a recovery. The total number of UK mortgage products, both residential and Buy-to-Let, rose as we moved into 2023. But they’ve still not reached the peak seen prior to the mini-Budget. Also, total mortgage lending and total approved mortgage rates are lagging.

Source: The Telegraph, The Guardian, FT Advisor, Land Registry, Land Registry, Moneyfacts

Is mortgage lending tightening now and what about the future?

Fortunately, cooler heads prevailed in the opening months of 2023. Questions akin to “is mortgage tightening?” may be asked less frequently soon. Jeremy Hunt, our latest Chancellor, calmed the wider markets with a package of tax incentives, spending cuts, extended childcare support, and pension reforms.

Some of these efforts appeared to restore confidence among the UK’s lenders. Mortgage approval for home purchases rose for the first time in six months in February. Reaching 43,500, up from 39,600 in January.

But while we all want to remain hopeful that this optimism continues to flow, storm clouds may be gathering. Defaults are on the rise, which may result in fewer mortgages being approved. Meanwhile, some expect tightening of mortgage availability to last into at least May.

Looking ahead, new legislation may hinder lender’s ability – or willingness – to engage with Buy-to-Let investors. Michael Gove hasn’t been shy in laying out his plans for rental reform. Everything from Section 21 orders to holiday home rules are set to be upended. This all adds to the uncertainty banks must incorporate.

Then there’s the international regulations to consider. Mike explained: “Basel III, coming in 2025, means banks have to put aside more capital against riskier lending. This may limit how much funding is available for the day-to-day stuff.”

Source: The Times, The Times, i news, The Sun, City A.M., The Telegraph

specialist finance outside tickbox criteria

So how do we fit in?

If you’re struggling against tightening mortgage lending on the high street, we’re here for you. Mainstream banks tend to adhere to rigid tick-box lending criteria. It seems more boxes are constantly being added to the list, and only the most straightforward cases are hitting the requirements.

But, we don’t follow rigid criteria assessments for our buy-to-let mortgages and bridging loans. Every claim we assess on its own merits. We won’t let the pessimism in the wider market sway your potential. Rather than threat over the headlines, we’ll focus on your specific investment, the exit strategy at hand, and the property’s potential.

We always look for reasons to lend, even in the direst of economic circumstances. Since our founding in 2006, we have supported property investors despite various crashes, political uncertainty, and a worldwide pandemic.

We’ll continue to do so in the face of high street lending hesitancy, challenging legislation, and rising costs. We can help you find a satisfying solution to the question of is mortgage lending criteria tightening.


MFS are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice.

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