Copy article

Mortgage stress testing

Journalist: Melissa Lawford, The Telegraph

ended 06. April 2023

How many percentage points above SVR are lenders stress testing mortgage borrowers at the moment? Are many of them still testing at 3 percentage points above SVR, despite the fact that the Bank of England removed this requirement, and the FCA guidance is only one percentage point? Or are they testing at higher/lower rates? What do lenders' stress tests mean for how much buyers can borrow?

7 responses from the Newspage community

Copy all

Copy

Editor
Emma Jones
Managing Director at Whenthebanksaysno.co.uk
Some lenders are still stressing slightly higher & would like not to be following the advice from the Bank of England at the moment which we would have expected (nothing new here) but I am still providing my client's strong affordability figures to clients we are speaking with daily. I am confident things are moving in the right direction and we are seeing more first-time buyers now on the hunt for properties and lenders even launching new products as they promised at the start of the year. The issue isn't the affordability its the fact clients' budgets have changed on what they can afford each month, this in turn will reduce the amount they 'want' to borrow rather than what they 'can' lend.
Copy

Editor
Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Lenders appear to be stress testing at rates closer to the old rule of 3% over SVR. This could be because they know the housing market is on weak foundations and is likely to fall this year. I expect, when more stability returns to the market and interest rates come down then these affordability criteria will also be relaxed. It's frustrating for first time buyers that there is no longer a hard and fast rule that lenders abide by when assessing affordability. Thankfully, brokers have much more sophisticated software now, that looks as each lenders criteria and can produce accurate results for what you can afford.
Copy

Premium
Jamie Alexander
Mortgage Director at Alexander Southwell Mortgages
At present, there is a variation in the stress testing rates used by lenders. Despite the Bank of England's easing last August, some lenders are still imposing slightly higher stress testing rates. I am optimistic about the ongoing progress, evidenced by an increasing number of first-time homebuyers searching for properties, and lenders keeping their promise to introduce new products this year. The primary issue at hand is not the affordability aspect but rather the fact that clients' outgoings have undergone significant increases, reducing the amount they may prefer to borrow, despite being eligible to lend more.

Clients using their maximum borrowing is currently quite rare, they would prefer to take a cautious approach.
Copy

Gary Bush
Financial Adviser at MortgageShop.com
Lenders' stress testing rates currently vary. The cynical might think that this rate is more being used to control inflows of applications for newly released fixed-rate offerings to protect lenders from an avalanche effect than to follow regulatory recommendations.
Copy

Gary Boakes
Director at Verve Financial
The lender's affordability seems to be varying massively between lenders at the moment, with rates at a point where there is little movement, lenders are controlling business with affordability and criteria. An FTB i met yesterday, her mortgage affordability varied £31,000 across the top 10 lenders, that is a massive difference and why in the current market everyone should be seeing a mortgage broker so they know their maximum borrowing potential.
With the rate changes we have seen a shift in people borrowing the maximum they could when the rates were low, people now looking at how much they can borrow if the mortgage was a £1000 a month. The last 12 months have made people look at their income and expenditure in more detail, which is a great thing going forward.
Copy

Adam Smith
Founder at Alfa Mortgages
Stress test percentages are varying greatly from one lender to another at present. However, from what we can see they have reduced. But let’s not forget that ultimately, the impact of lenders' stress tests on how much buyers can borrow will depend on a range of factors, including the borrower's financial situation, the type of mortgage being applied for, and the lender's specific lending criteria.
Copy

Amit Patel
Adviser at Trinity Finance
What a borrower could potentially borrower will vary from lender to lender as each lender has an internal stress rate which they will apply to an application dependent on several factors such as credit profile, income, expenditure and loan to value.

What we have certainly seen since the beginning of 2022 is that each household in the UK is facing higher costs on their energy bills and food due to high inflation. Once inflation comes back down to normality it will be prudent for lenders to ease up on their stress testing.