Lenders to refuse half of Help to Buy applications

Up to half of all applications for Help to Buy mortgages could be turned down as lenders set tough criteria, a property expert has claimed.

Lenders such as RBS/NatWest and Lloyds Banking Group are applying tough criteria to protect borrowers and themselves against rising interest rates.

The banks are assessing borrowers on whether they could afford to pay interest rates of up to 7%, pricing out many applicants, said Simon Gammon, managing partner at Knight Frank Finance.

"There have been a decent number of Help to Buy applications to the state-owned banks, which have been told to say it has been a great success, but I will be very interested to see how many of the total applications are approved.

"If you look at the underwriting process, a very small number will be accepted. The lenders are assessing potential borrowers based on 6% or 7% affordability. My gut feeling is at least half of applicants won't be approved."

Last week, Prime Minister David Cameron announced that 2,384 people had been accepted for a mortgage under the second phase, although just 10 had completed.

The figures did not show how many applicants had been turned away.

Andrew Montlake, of broker Coreco, was quoted in the report in The Sunday Telegraph as saying that a number of his clients had been rejected for Help to Buy mortgages.

One, who had an annual salary of £100,000 and wanted to borrow £300,000, was rejected even though he didn't have any credit problems. Although he was subsequently, accepted for an 85% mortgage for £500,000.

Montlake said this showed the lenders are imposing much tougher credit scoring for 95% loans and higher affordability thresholds.

If lenders made it too easy to get a mortgage with a 5% deposit, they would be "inundated" in applications, he said.

Other brokers suggested that banks will ease their lending and affordability criteria next year as more lenders offer Help to Buy deals.