Last week Ofgem announced that the energy price cap was rising from £1,277 at the start of the year to £3,549 from October 1^st.

Lack of supply and increased demand has pushed prices up higher than anyone could have anticipated. With the war in Ukraine putting sanctions on gas and electricity supply from Russia (Russian imports accounted for half of Europe’s fuel supplies) along with an increase in economic activity after the end of Covid19 restrictions, as well as a cold winter in Europe and hot summer in Asia leading to an increase in electricity consumption, we have seen a perfect storm leading to these rises.

The rising cost of energy has also had an impact on the mortgage market, so here are some tips on how to ensure you qualify for a mortgage deal.

Lenders will be factoring in your energy costs when looking at affordability calculations and it could affect the amount they are willing to lend. It’s essential that you have room in your budget to cope with further rises.

The rising cost of living could make it more difficult to secure a mortgage especially if your budget is too tight to cope with further energy price rises. However, mortgage stress testing has eased over the last year. Previously, anyone who applied for a mortgage or remortgage, needed to show that they could afford mortgage repayments if the mortgage rate was 6% or 7%. This requirement has now been removed giving greater flexibility to borrowers.

The mortgage affordability rules tend to affect first-time buyers and those on a low income, and this group will be more affected by energy rises. Those on a high income will be less affected.

Mortgage rates are rising as a result of the Bank of England’s base rate rises since December. The cost of a 2-year fixed rate mortgage has jumped from below 2% to over 4%. With an uncertain economic outlook lenders tend to reduce the availability of loans at higher loan-to-value ratios.

What can you do?

There are ways to make you more attractive to lenders:

• Cut back on unnecessary spending and reduce your credit cards, loans and store cards where possible.
• Remove any monthly subscriptions such as Netflix, Prime, gym membership etc.
• Pay off credit cards or reduce your balance to under 50% of the available credit.

The rising energy price and increase in cost of living isn’t expected to trigger a house price crash but instead, house prices could slow down following two years of rises. The majority of homeowners on a fixed rate deal won’t be affected by the rise in interest rates.