Mortgage guidelines at Nationwide have been revised, allowing borrowers to secure larger loans.
Loosened mortgage lending rules by Nationwide give borrowers a boost in purchasing power, decreasing the stress rates it uses for testing potential mortgage applicants.
In simple terms, Nationwide and other lenders are making it simpler for borrowers to pass affordability tests, unlocking the potential for individuals to buy pricier properties or access larger loans. By loosening the stress rates for both its standard loans and those for eligible first-time buyers and home movers fixing their mortgage for five years or more, Nationwide claims that a home owner with a household income of £75,000 could go from previously being able to borrow up to £307,000 to now being able to borrow £336,800, representing a significant £29,800 increase.
For a first-time buyer with an income of £55,000, the maximum borrowing increase would be £25,800, taking the loan from 5.53 times their income to six times. Even those remortgaging but not taking additional borrowing would get a boost, potentially qualifying for a loan of up to £278,100, an increase of £42,600 based on an income of £45,000 and a 40-year mortgage term.
Lenders have stress rates that differ depending on the mortgage term and other factors, usually testing borrowers against rates two or three percentage points higher than their current one. These stress rates became common after the 2008 financial crisis as a means of preventing unaffordable loans.
Critics argue that the high stress rates may prevent some individuals who could afford a mortgage from obtaining one. As banks are restricted in the number of loans they can issue that are more than 4.5 times what the borrower earns, Nationwide is pressing the Bank of England to increase this limit.
Recently, other lenders such as Santander, Lloyds Banking Group, HSBC, and First Direct have also made adjustments to their stress rates, aiming to provide borrowers with more borrowing capacity. These changes are in response to guidance from the Financial Conduct Authority, which emphasizes that lenders should not unduly restrict access to affordable mortgages as interest rates decrease.
- The adjustments in stress rates by Nationwide and other lenders, including Santander, Lloyds Banking Group, HSBC, and First Direct, indicate a shift in the banking industry to provide more borrowing capacity, particularly for personal-finance matters such as purchasing properties.
- Deregulation in mortgage lending by banks like Nationwide in the form of lower stress rates can enable homeowners to access larger loans, positively impacting their business ventures by potentially increasing their property portfolio or investment opportunities in the finance market.
- With the relaxations in mortgage rules, first-time buyers can potentially secure higher loans, allowing them to venture into personal-finance planning, such as investing in their business or building a stable foundation for their future by owning a property.
