Santander Loosens Stress Test: Santander has reduced its mortgage affordability stress test rate, moving from testing at 1 percentage point above its Standard Variable Rate (SVR) to a range between 6% and 7%.
Increased Borrowing Potential: This change could allow eligible Santander customers to borrow between £10,000 and £35,000 more than previously possible.
FCA Guidance: The move follows recent guidance from the Financial Conduct Authority (FCA) encouraging lenders to ensure their testing isn't unduly restricting access to affordable mortgages.
TSB Rate Cuts: TSB has lowered rates by up to 0.2% on select buy-to-let (BTL), product transfer, and additional borrowing mortgages, effective recently. TSB also introduced new BTL fixed-rate products.
Why this matters: These changes signal potential shifts in lender practices. Santander's move could put pressure on competitors to follow suit, potentially easing borrowing constraints for some, while TSB's cuts offer specific savings for landlords and existing customers seeking new deals or further borrowing.
Santander's Affordability Adjustment:
Mortgage stress tests were widely adopted after the 2008 financial crisis to prevent borrowers from taking on unaffordable debt. They assess if a borrower could still afford repayments if interest rates rose significantly, typically testing against a rate much higher than the actual deal rate. Santander's decision to lower its stress test buffer (though still testing at a cautious 6-7%) is the first significant move by a major lender in response to the FCA's call for flexibility.
Who This Affects Most (Santander):
First-Time Buyers: A couple earning £49,500 might borrow nearly £14,000 more on a 2-3 year fix.
Home Movers: A couple earning £63,500 could potentially borrow almost £21,000 more on a 5-year fix.
Existing Santander Customers: Those looking to borrow more may see the most significant benefit.
Important Note: Loan-to-income caps still apply, so the maximum borrowing amount won't increase for everyone. As David Hollingworth of L&C Mortgages noted, this helps those whose affordability was previously just out of reach, rather than dramatically increasing limits across the board.
TSB's Rate Reductions:
TSB's focus is on specific product types:
Buy-to-Let (BTL): Reductions of up to 0.2% on various fixed-rate deals (both purchase and remortgage), plus new 2 and 5-year fixed products. This could appeal to landlords looking to purchase or refinance.
Product Transfers: Rate cuts for existing TSB BTL customers switching to new deals.
Additional Borrowing: Lower rates for homeowners looking to borrow more against their property.
How to Prepare:
Check Eligibility: If you're considering a mortgage, especially with Santander, check how the new affordability rules might impact the amount you can borrow.
Compare Offers: Don't assume one lender's change benefits everyone. Always compare rates and criteria across multiple lenders. Use a mortgage broker for expert advice.
Review Existing Mortgages: If you have a TSB mortgage (especially BTL) or are considering additional borrowing, review the new rates.
Q: What is a mortgage stress test?
It's a calculation lenders use to check if you could still afford your mortgage payments if interest rates were to rise significantly above your actual deal rate.
Q: Will Santander's change mean I can definitely borrow more?
Not necessarily. While the stress test is easier, your borrowing is still limited by your income (loan-to-income caps) and overall financial situation. However, it may increase the potential maximum loan for eligible applicants.
Q: Are other banks likely to follow Santander?
Experts suggest it's possible. The mortgage market is competitive, and other lenders will be watching Santander's move and the FCA's guidance closely.
Q: Who benefits from TSB's rate cuts?
Primarily buy-to-let landlords (new purchases, remortgages, product transfers) and existing homeowners seeking additional borrowing from TSB.
Potential for Increased Borrowing: Santander's change could make homeownership slightly more accessible for those previously borderline on affordability.
Market Competition: These moves may signal increased competition among lenders, potentially leading to more favourable conditions for borrowers later this year.
Targeted Savings: TSB's cuts offer specific benefits for BTL investors and those needing further advances.
Action Point: Re-evaluate your borrowing potential and compare market offers, especially if Santander's previous stress test limited your options or if you fit the profile for TSB's rate cuts.
The mortgage landscape is evolving. Do you think these changes will significantly impact the housing market? Let us know your thoughts in the comments!
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The Guardian: Santander eases mortgage rules so it can lend up to £35,000 more
The Independent
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