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Affordability stress tests

Journalist: Anna Sagar, Mortgage Solutions / Specialist Lending Solutions

ended 05. October 2022

Looking to speak to mortgage brokers about stress tests on mortgages.

  1. Do lenders still have them in force despite them being withdrawn earlier this year? 
  2. Do you expect lenders to increase their stress rates in the current environment?
  3. Which cohorts of borrowers will be most impacted by rising stress rates?
  4. What advice would you give borrowers/how will this impact advice process?

2 responses from the Newspage community

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Editor
Mike Staton
Director at Staton Mortgages
Do lenders still have them in force despite them being withdrawn earlier this year? Lenders still have stress testing in place, they have however relaxed the stress testing allowance they use. Do you expect lenders to increase their stress rates in the current environment? Despite the current perception that lenders do not want to lend, i dont think we will see any lenders opt to make stress testing more difficult, lenders have multiple options to reduce the flow of mortgage applications coming in and we are seeing this daily with increased rates and reductions in available products, this is quite a normal thing in the mortgage industry, however we havent seen the extreme levels that we are currently seeing in a while Which cohorts of borrowers will be most impacted by rising stress rates? Obviously, first time buyers on low incomes would always be expected to be the hardest done by with any change to affordability calculations What advice would you give borrowers/how will this impact advice process? Every lender takes a different approach to lending and inparticular, affordability, seeing a broker with a large panel of lender is vital as just because one lender wont lend the amount you need, it doesant mean another will. Only last week did i get a client a mortgage offer of £174k when his original broker told him £140k was his maximum.
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Gaurav Shukla
Managing Director at Home Me Mortgages
Although bank of England withdrew the need for stress tests to remain in place, we have seen lenders increase them due to the consistency of rate increases and the level in which they are doing so. We’ve seen lenders increase stress test, with one main lender having increased them twice in the space of 3 months. I believe they will continue to increase stress tests on mortgages especially if/when Bank of England continue to increase the base rate. First time buyers may struggle as their borrowing ability will be less, meaning they will need a larger deposit, which we know is already hard enough for them to get. People with existing debts in place may also struggle to borrow the amount they need as the cost of living is taken in to account, and with that also increasing, it leaves less disposable income to cover mortgage payments against the increased stress test. It’s more important than ever to speak to your mortgage broker to let you now what you can borrow and how much the monthly payments are. At home me, we also have access to lenders that can boost borrowing to help purchase the home you want sooner rather than later. We’re here to give you the best advice for your needs and circumstances after we’ve assessed your circumstances, so we’ll always be on your side.