Banks are now giving home buyers access to significantly larger mortgage loans, with borrowing potential increasing by tens of thousands of pounds.
Since March, several major high street lenders have eased their lending criteria, allowing buyers to borrow more when purchasing a property.
Santander was one of the first to make a move, by adjusting its ‘stress test’—a key part of the application process where lenders check if borrowers could still afford repayments if interest rates were to rise.
This change means that the average applicant could potentially borrow up to £35,000 more, according to the bank.
Shortly after, Lloyds Banking Group made similar changes, increasing average borrowing amounts by around £38,000. HSBC, First Direct and Barclays also followed suit, raising the limits on the amounts they are willing to lend.
These developments are particularly encouraging for home buyers, especially those getting on the property ladder for the first time, as they often rely on larger loans to secure their first home.
The question remains: why are lenders choosing to do this now?
Understanding the timing and the reasoning behind these changes is important for borrowers who want to take advantage of more generous mortgage offers.
Why are banks relaxing mortgage rules?Â
Mortgage lenders have long used a method known as ‘stress testing’ when assessing applications for fixed rate mortgages. This process is designed to ensure that borrowers would still be able to afford their repayments if their interest rate were to rise once their fixed deal expires.
For example, until recently, someone applying for a two-year fixed mortgage with an interest rate of 4.5 per cent could have been tested on whether they could afford to repay the loan at a much higher rate—often around 7.5 per cent. This high threshold acted as a safeguard for lenders, helping to prevent future financial strain on borrowers.
In the case of five-year fixed deals, the stress testing figure might have been slightly lower—around 6.5 per cent—due to the longer period of rate certainty. However, it’s important to note that most banks do not publicly disclose the specific rates used in these stress tests, so the exact figures can vary between lenders.
The purpose of these tests is to give mortgage providers confidence that borrowers would still manage repayments even if they ended up on the lender’s standard variable rate (SVR) once the fixed term concludes. With SVRs typically being higher, these tests help assess whether households can cope with possible increases in monthly outgoings.
However, the landscape is now beginning to change. A number of high street banks have recently eased their stress testing requirements, allowing borrowers to access higher loan amounts than before. This shift means that many buyers are now able to borrow significantly more—sometimes tens of thousands of pounds more—than they could just a few months ago.
One of the key reasons behind this change is a shift in the regulatory approach. The Financial Conduct Authority (FCA) recently issued new guidance, urging lenders to ensure that mortgage affordability checks are proportionate. In particular, the FCA has encouraged lenders not to unnecessarily block access to mortgages that are clearly within a borrower’s means, especially now that interest rates are showing signs of stabilising.
This more flexible attitude comes as welcome news for many prospective buyers, especially first-time buyers who often struggle to get onto the property ladder due to affordability limits. By loosening stress testing rules, lenders are making it easier for more people to secure the financing they need.
While this does not mean a complete relaxation of lending standards, it does indicate a more balanced and practical approach that considers both market conditions and borrower affordability.
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