Clydesdale Bank and Virgin Money have become the latest lenders to ease their home loan stress rates, allowing customers to borrow around an extra £40,000.
The banks say the new rules apply to variable or fixed-rate residential mortgages for terms under five years.
They explain that a typical example of joint borrowers with a combined income of £85,000, can expect to see their maximum borrowing rise to up to £40,000.
The group adds that for higher earning borrowers — for which Clydesdale Bank is more suited — “the increase in maximum borrowing can be proportionately higher”.
Earlier this month, Barclays relaxed its affordability calculations which it said on average would allow customers to borrow almost £31,000 more.
Nationwide, NatWest, Lloyds Banking Group, Santander, Hodge and Accord Mortgages are among several lenders that have eased their stress tests to allow more borrowing in recent weeks.
The moves from these firms come after the Financial Conduct Authority said in March that lenders have been “too cautious” in granting FTB home loans under current rules.
Financial Conduct Authority chief executive Nikhil Rathi told the Treasury Committee that under existing regulatory rules lenders have a degree of “flexibility” over the stress tests they apply to homebuyers coming to the market for the first time, which they have not exercised.
John Charcol mortgage technical manager Nicholas Mendes says: “Banks are allowing borrowers to stretch their finances further because the regulatory environment has shifted.
“In response, many lenders have adjusted their stress testing, meaning borrowers can now access larger loans based on their actual affordability rather than artificially inflated scenarios.
“For some, particularly first-time buyers with stable incomes, this could be the change that allows them to finally get on the housing ladder.”
But Mendes adds: “The Bank of England’s long-standing cap on high loan-to-income lending – the 15% rule – remains in place. Introduced over a decade ago to limit systemic risk in the wake of the financial crisis, it now sits awkwardly alongside stricter stress testing and more robust capital requirements.
“As a result, there’s a tension — while more borrowers now qualify under the updated affordability criteria, lenders are constrained in how many of those loans they can actually issue.”
“Will it lead to more completions among first-time buyers? Likely, yes. But there may also be broader market consequences, including upward pressure on house prices, particularly in already supply-constrained areas.”
