June 5, 2025
Mortgage

Relaxed mortgage rules will boost first-time buyers but send house prices up, says report


Easing stringent mortgage stress testing rules could cause house prices and first-time buyer numbers to rise, according to research. 

More relaxed mortgage stress tests could see the number of first-time buyers purchasing a home rise by 24 per cent, or more than 80,000, over the next five years, Savills claims.

Its analysis suggests more relaxed mortgage rules could boost first-time buyer transactions by between 14 per cent and 24 per cent. 

However, easing mortgage stress tests could also cause property prices to rise by between 5 per cent to 7.5 per cent in five years, Savills added. 

It said: ‘Transactions and house prices are strongly linked – the more relaxed borrowing drives up house prices, the less impact there will be on transactions.’ 

Following a change in Bank of England guidance in March, mortgage lenders are no longer required to stress test borrowers at the standard variable rate plus 1 per cent, so long as borrowers take on a fix of less than five years. 

Impact: Easing stringent mortgage stress testing rules could cause house prices and first-time buyer numbers to rise, research claims

Impact: Easing stringent mortgage stress testing rules could cause house prices and first-time buyer numbers to rise, research claims

Stress tests are the part of a mortgage application where the lender checks that the borrower could still cope if their interest rate increased.  

Major lenders, including Halifax, HSBC, Nationwide, Natwest and Nationwide, have altered their mortgage stress tests to reflect the change. 

Lenders have come under pressure from the Financial Conduct Authority to act. 

Earlier this year, the FCA said that amid falling interest rates, the market approach to interest rate stress testing may be ‘unduly restricting access to otherwise affordable mortgages.’ 

Next month, the FCA will open a public discussion on the future of the mortgage market. 

Lucian Cook, head of residential research at Savills, said: ‘Relaxed lending rules will certainly change the course of travel for the housing market in the medium to long term, but there will be a strong interplay between the extent to which house prices and first-time buyer transactions increase. 

‘The more increased borrowing capacity impacts prices, the less impact there will be on transactions.’

He added: ‘Change would not be immediate, with the impact on house prices and transactions likely to take place over a period of five years. 

‘The current uncertain economic outlook is likely to hold back buyer confidence and willingness to take on substantially more debt in the short term.

‘But in the medium to long term, the market would feel the knock-on impact of a widening pool of buyers. 

‘This will be good news for housing delivery but it’s unlikely to be enough to allow the government to hit its housebuilding targets.’ 

Savills claimed relaxed lending rules will increase the number of buyers, which in turn could drive up house prices. How much prices will rise will depend on how much new housing stock is delivered to meet the additional demand, it added. 

Savills quantified the impact of the new stress test regulations by comparing mortgage costs as a percentage of income under the previous stress-testing criteria, with the outcomes under less stringent interest rate scenarios. 

The analysis assumed that half to three-quarters of the increased borrowing capacity is added to the borrower’s purchase price, either allowing them to buy something bigger or better, or because of house price growth. 

Santander was the first major lender to update its mortgage stress tests in March and reduced all of its stress test rates by 0.75 per cent, bringing them to the lowest level since 2022.

Santander said this meant many customers applying for a residential mortgage from it could now borrow between £10,000 and £35,000 more than previously, depending on their individual circumstances and subject to affordability checks and loan to income limits. 

In April, HSBC and First Direct announced changes to the stress rates used in their mortgage affordability calculations.

HSBC said the changes could enable 20,000 more customers to get a home loan with the bank alongside being able to borrow larger amounts as part of a mortgage. 

First Direct, which is part of HSBC, said the move could benefit around 85 per cent of mortgage applicants, allowing them to borrow an average of £22,000 more. 

On 30 May, Clydesdale Bank and Virgin Money announced that the stress test rate applied for their residential mortgages had been reduced where the mortgage is variable or fixed for less than five years. 

Do the changes go far enough?

Banks are allowing borrowers to stretch their finances further because the regulatory environment has shifted. 

How the changes affect your loans 

The following lenders have already altered some of their mortgage stress tests. The lenders outlined how the stress test changes could affect buyers. 

Santander – since 28 March 2025

A first-time buyer household on £49,500 would be able to increase their maximum borrowing from £196,000 to £210,000, representing a £14,000 or 7 per cent increase.   

An upsizer on £63,500 would increase their maximum borrowing capacity from £284,000 to £305,000, Santander said.  

Halifax and Lloyds – 15 April 2025

Halifax and Lloyds said a relaxation in stress tests would allow an average increase of 13 per cent on the maximum loan available. For a family with a £75,000 income on a 25-year repayment mortgage, that could be an increase in the region of £38,000.

HSBC – 22 April 2025

Following the changes, a first-time buyer increase for a home loan could be up to £39,000 and enable 20,000 more customers to get a loan, HSBC said. First Direct customers can borrow an average of £22,000 more than previously.

Natwest – 28 April 2025

A typical family would be able to borrow £33,000 more following the updates, Natwest said. 

Nationwide – 15 May 2025

Applicants are able to borrow on average £28,000 more on the basis that the rate for the stress test is reduced by between 0.75 per cent and 1.25 per cent, Nationwide said.

Clydesdale Bank and Virgin Money – 30 May 2025

Taking a typical example for joint borrowers with a combined income of £85,000, certain borrowers can expect to see an uplift in maximum borrowing of up to £40,000. 

For your higher earning clients, the increase in maximum borrowing can be proportionately higher. 

Recent guidance from the FCA encourages lenders not to unduly restrict access to mortgages that are affordable, especially as interest rates begin to stabilise. 

Speaking to This is Money, Nicholas Mendes, mortgage technical manager at broker John Charcol, said: ‘For some, particularly first-time buyers with stable incomes, this could be the change that allows them to finally get on the housing ladder.

‘However, the Bank of England’s long-standing cap on high loan-to-income (LTI) lending – the 15 per cent rule – remains in place. 

‘Introduced over a decade ago to limit systemic risk in the wake of the financial crisis, it now sits awkwardly alongside stricter stress testing and more robust capital requirements. 

‘As a result, there’s a tension: while more borrowers now qualify under the updated affordability criteria, lenders are constrained in how many of those loans they can actually issue. 

‘This often forces difficult decisions and can skew support towards higher-income borrowers or larger loans, rather than helping first-time buyers.

‘There’s no doubt the changes reflect a more accurate and arguably fairer view of affordability, removing some of the overly cautious buffers that were shutting people out. 

‘For many, it’s a welcome shift. But it’s not without risk. Higher borrowing – even if technically affordable today – leaves households more exposed to future financial shocks, whether through rising rates or changes in personal circumstances. 

‘If too many borrowers take on more debt simultaneously, it could reintroduce the very vulnerabilities the original rules were designed to prevent.’

He added: ‘Without tackling the underlying issues – namely high prices and limited supply – long-term affordability will remain out of reach for many.

‘Ultimately, this shift is about adapting to current conditions. But responsible lending and clear financial advice remain critical. Just because someone qualifies for a bigger loan doesn’t necessarily mean it’s the right decision for them in the long run.’ 

How to find a new mortgage

Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible. 

Buy-to-let landlords should also act as soon as they can. 

Quick mortgage finder links with This is Money’s partner L&C

> Mortgage rates calculator

> Find the right mortgage for you 

What if I need to remortgage? 

Borrowers should compare rates, speak to a mortgage broker and be prepared to act.

Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.

Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.

Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone. 

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Buyers should avoid overstretching and be aware that house prices may fall, as higher mortgage rates limit people’s borrowing ability and buying power.

What about buy-to-let landlords

Buy-to-let landlords with interest-only mortgages will see a greater jump in monthly costs than homeowners on residential mortgages.

This makes remortgaging in plenty of time essential and our partner L&C can help with buy-to-let mortgages too. 

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a broker.

This is Money has a long-standing partnership with fee-free broker L&C, to provide you with fee-free expert mortgage advice.

Interested in seeing today’s best mortgage rates? Use This is Money and L&Cs best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

If you’re ready to find your next mortgage, why not use L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.

> Find your best mortgage deal with This is Money and L&C

Be aware that rates can change quickly, however, and so if you need a mortgage or want to compare rates, speak to L&C as soon as possible, so they can help you find the right mortgage for you. 

Mortgage service provided by London & Country Mortgages (L&C), which is authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage 



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