Mortgage applicants could borrow an average of £28,000 more with Nationwide after the lender reduced its stress testing rates.
The new rules, which will change the way the lender assesses affordability, will also apply to its Helping Hand range of mortgages for first-time buyers.
However, the largest boost to borrowing amounts is expected to be on remortgages.
The move comes after the Financial Conduct Authority (FCA) loosened its guidance around stress testing.
Typically, when mortgage lenders assess an applicant’s suitability for a product, they consider whether they would be able to repay the loan were the interest to increase by a certain amount. But the FCA has said lenders could change the way this is assessed to benefit customers.
As such, from today, Nationwide is reducing this calculation to by between 0.75% and 1.25%. It said this would help applicants borrow more.
It is just one part of the affordability calculations lenders use, however. Another part of the process involves them doing sums where they multiply the applicant’s income by a certain amount to decide if they would be eligible for the loan required to buy their home.
At present lenders typically allow borrowing at 4.5 times a borrower’s income. But Nationwide allows borrowers via its Helping Hand mortgage for first-time buyers to borrow up to six times their income.
Lenders are restricted by the FCA as to how much borrowing it can do at this level and Nationwide has called for the rules around this to be loosened too so it can help more borrowers. It recently lowered the minimum income for Helping Hand customers to help support this.
It said, because many of its remortgage customers borrow at 4.5 times their income, they will benefit the most from the news rules around stress testing.
Nationwide said, even with these changes, it continued to have a range of criteria and underwriting checks so that it could lend responsibly whilst also addressing the affordability challenges.
How will Nationwide’s stress test changes benefit borrowers and their mortgages?
Mortgage brokers have welcomed this development. David Hollingworth, associate director at L&C Mortgages, said it will give more borrowers the chance of accessing a larger borrowing.
“Affordability remains one of the key areas preventing customers turning their homebuying aspiration into a reality,” he said. “Stress rates help build in some headroom to homeowners’ monthly budget, allowing them to better deal with rising rates.
“Taking a more measured approach should give more flexibility to the right customers but still providing balance against over exposing borrowers in future.”
He said as well as first-time buyers using the Helping Hand mortgage it would also help those exiting deals with lower rates who are concerned about high mortgage repayment costs. “Customers with concerns that they wouldn’t meet a new lender’s criteria, due to the higher rate environment,” he said, “could find that affordability is now more generous than they thought.
“That should open up more choice from the open market rather than necessarily having to stick with an existing lender.”
