Clydesdale Bank and Virgin Money have become the latest lenders to alleviate the pressure rate of home loans, allowing customers to borrow an additional £40,000.
The new rules apply to retail-rate residential mortgages with a retail rate of less than five years, the bank said.
They explained that the classic example of a co-borrower’s total income of £85,000 can be expected to rise to £40,000.
For higher income borrowers (more suitable for Clydesdale Bank), the group added that “the increase in maximum borrowing is likely to be higher.”
Nationwide, NATWEST, LLOYDS BANKING GOUP, SANTANDER, HODGE and ACCORD NERTGAGES are among some relaxed lenders who have eased stress tests to allow more borrowing in recent weeks.
The companies’ moves came after financial conduct authorities said in March that lenders were “too cautious” to grant FTB home loans under current rules.
Financial Conduct Authority CEO Nikhil Rathi told the U.S. Treasury Commission that under existing regulatory rules, lenders have some degree of “flexibility” in their stress tests that apply to home buyers who first enter the market, but they have not exercised.
“Banks allow borrowers to further expand their financial situation because of changes in the regulatory environment,” said Nicholas Mendes, mortgage technology manager at John Charcol.
“In response, many lenders have adjusted their stress tests, which means borrowers can now get bigger loans based on their actual affordability rather than artificial inflated situations.
“For some people, especially buyers who get stable income for the first time, this could be a change that will eventually lead them to the housing ladder.”
But Mendes added: “The Bank of England’s long-standing cap on high-loan loans (the 15% rule) remains. Introduced a decade ago to limit systemic risks, it now sits awkwardly with stricter stress tests and stronger capital needs.
“As a result, there is tension – although more borrowers are now eligible under updated affordability standards, lenders are limited in the amount of loans they actually issue.”
“Will this lead to the completion of first-time home buyers? Probably, yes. However, the market could have greater consequences, including rising pressure on housing prices, especially in areas that are already subject to supply constraints.”
