Santander becomes first major lender to loosen mortgage rules
Santander has become the first major UK lender to relax its mortgage rules following a nudge from the Financial Conduct Authority (FCA).
Homebuyers could be able to borrow an extra £35,000 on a mortgage under the changed rules.
The UK’s fourth-largest mortgage lender will reduce rates on borrower’s stress tests, which are used to check loans can be paid if interest rates were to rise.
Currently, borrowers are assessed to ensure they can afford a rate around one point higher than the bank’s standard variable rate (SVR) of 6.75 per cent, which applies to homeowners once their fixed-rate deal expires.
Santander will lower its stress rate to between six and seven per cent.
The bank said this meant borrowers would be able to take out loans of between £10,000 and £35,000 more, depending on their salary.
This followed the FCA’s chief executive telling the Treasury Committee on Tuesday that lenders were overly careful on stress tests.
Rathi said: “Already lenders can exercise judgment as to how they do the stress test, and we think that some may be being too cautious at the moment in the level of interest rate they’re stressing against.”
He added the FCA was looking into changes that could be made to the regulation of mortgage lending in order to boost home ownership.
A Santander source told The Times: “”There is still going to be a cap on how much you can borrow.
“Will this cause house prices to shoot up? Probably not, but it will help some people get what they need.”
Stress test rules were originally introduced by the FCA to avoid any repetition of the financial crisis.
The tests helped protect borrowers from the sharp rise in mortgage rates that began at the end of 2021, which saw the Bank of England base rate shoot from an all-time low to a 15-year high of 5.25 per cent in August 2023.