One of Britain’s biggest lenders has relaxed its mortgage affordability rules to enable customers to borrow up to £35,000 more.
Santander has made changes to its ‘stress tests’ – the part of a mortgage application where the lender checks that the borrower could still cope if their interest rate went up.
Commonly, lenders will check that a borrower could pay a mortgage rate two or three percentage points higher than their current one, so if they had a rate of 4 per cent their finances might be tested against a 6 or 7 per cent rate.
Banks have several different stress test rates depending on the mortgage term and other factors.
Santander says it has now reduced all of its stress test rates by 0.75 per cent, bringing them to the lowest level since 2022.
The bank says it means that many customers applying for a residential mortgage from Santander can now borrow between £10,000 and £35,000 more than yesterday, depending on their individual circumstances and subject to affordability checks and loan to income limits.
Budget boost: Many customers applying for a residential mortgage from Santander can now borrow between £10,000-£35,000 more than they could do yesterday
Santander has done this in response to pressure from the Financial Conduct Authority and is the first lender to do so.
The FCA said at the time that, as interest rates fall, lenders should make sure they are not ‘unduly restricting access to otherwise affordable mortgages’.
In May the regulator will launch a consultation proposing ideas to simplify lenders’ rules and benefit borrowers with the aim of boosting homeownership.
David Morris, head of homes at Santander UK said: ‘Helping customers achieve their homeownership dream is a key priority for Santander, but we know that affordability constraints continue to bite.
‘We’re thrilled to be the first major lender to respond to the updated FCA guidance, alongside introducing a range of reduced mortgage interest rates today, fulfilling our role as a responsible lender while helping more customers to borrow what they need to release their home aspirations.’
Mortgage broker Bob Singh, founder of Chess Mortgages, told the news agency Newspage: ‘With a base rate cut now not expected until the summer, this move will be welcomed by many to ensure the market maintains momentum after the stamp duty rush is over next week.
‘The ability to borrow more could plug the gap and be the tonic the market needs until we see further rate cuts. Other lenders will surely follow suit.’
However, Mark Eaton, chief operating officer at longer-term fixed rate lender April Mortgages, thinks that increasing what people can borrow when interest rates are high isn’t helpful and could put buyers at risk if interest rates rise in the future.
‘There is a desperate need for more support to help homebuyers to cope with these financial pressures, but it has to be applied in the right way,’ said Eaton.
‘Reducing stress testing on short-term mortgage products to help people borrow more money is a potentially risky manoeuvre.
‘A more appropriate solution for borrowers would be to consider a longer-term fixed rate product, which isn’t subject to stress testing and can provide access to larger loan amounts.’
