Changes in the way lenders stress test borrowers could increase first-time buyer transactions by up to 24% over the next five years, Savills reveals.

Following a change in Bank of England guidance in March, lenders are no longer required to stress test borrowers at the standard variable rate plus 1%.

Lenders such as Nationwide and Barclays, among others, have already modified the way they apply the affordability test.

Savills says relaxed lending rules are expected to increase the number of buyers, which in turn is expected to drive up house prices. 

The amount depends on how much new housing stock is delivered to meet the additional demand. 

Based on the historical relationship between loan-to-value ratios and activity levels, stress tests could increase first-time buyer transactions by 47,000 in a higher house price growth scenario, to 80,000 on a lower price growth scenario, which represents an increase of 14% and 24% respectively. 

This could cause house prices to rise by an additional 5.0% to 7.5% on top of existing five-year forecasts. 

Savills head of residential research Lucian Cook says: “Relaxed lending rules will certainly change the course of travel for the housing market in the medium to long term, but there will be a strong interplay between the extent to which house prices and first-time buyer transactions increase.”

“The more increased borrowing capacity impacts prices, the less impact there will be on transactions.”

“Change would not be immediate, with the impact on house prices and transactions likely to take place over a period of five years. The current uncertain economic outlook is likely to hold back buyer confidence and willingness to take on substantially more debt in the short term.” 

“But in the medium to long term, the market would feel the knock-on impact of a widening pool of buyers. This will be good news for housing delivery but it’s unlikely to be enough to allow the government to hit its housebuilding targets.”