Lenders could ease “stress test” rule. Here’s why it may mean you can borrow more
Reports suggest the Financial Conduct Authority (FCA) is encouraging lenders to consider ways to make mortgages more accessible and to ease stress testing. If you’re a first-time buyer looking to move up the property ladder or borrow more against your mortgage, this could be good news.
When you apply for a mortgage, the lender has a responsibility to ensure the terms offered are affordable.
One way they do this is by stress testing your finances. This involves assessing how likely you are to default on your mortgage repayments, including if interest rates were to rise. The aim is to ensure borrowers will be able to comfortably meet mortgage repayments throughout the entire mortgage term, rather than simply at the time of application.
While the FCA requires lenders to carry out a stress test to determine affordability, the lenders have the flexibility to carry out the test in a way that’s appropriate for them and their customers. This can mean that different lenders will use different interest rates to assess your ability to manage repayments, with some being higher than others.
For example, one lender may test your ability to meet repayments if interest rates increase by 2%, which can make a huge difference to your monthly expenses.
Let’s say you want to borrow £200,000 over 25 years through a repayment mortgage. At an interest rate of 4.5%, your monthly repayment would be around £1,110. Now, if the lender carried out a 2% stress test, they’d want to be confident you could meet repayments if interest rates were 6.5%, which would mean showing you could meet repayments of £1,351 a month.
Similarly, a different lender might carry out a stress test to see if you could cope financially if interest rates increased by 3%. So, in this case, you’d need to demonstrate you could meet repayments if they increased to £1,478.
In the above scenario, this means that if the interest rate on your repayment mortgage was 4.5% some lenders would test to see if you could meet repayments as if the interest rates were 6.5%, while others would only test to see if you could meet repayments as if they were 7.5%.
So, even if you could afford the repayments at 4.5% some lenders might reject your application even while others would accept it.
The Financial Conduct Authority is set to call for evidence on stress testing methods
According to a report in the Intermediary, as part of efforts to support home ownership in the UK, the FCA has reminded firms of the current flexibility within its rules to allow creditworthy aspiring homeowners to obtain a mortgage.
In addition, the FCA is set to call for evidence on current and alternative stress testing methods.
As interest rates are falling – as of April 2025, the Bank of England has cut the base rate once this year – the expectation is that stress testing rules could be eased.
What would easing stress tests mean for you?
If the FCA eases stress testing rules, it could allow you to borrow more through a mortgage.
As a result, it could help:
Aspiring first-time buyers who have struggled to either find a lender that will approve their application or find a property they could afford to purchase with the mortgage they have been offered.
Home movers that want to step up the property ladder and purchase a more expensive home.
Mortgage holders who would like to borrow more against their home to fund other costs, such as investing in an extension or updating the kitchen.
Keep in mind that other factors will affect how much you can borrow through a mortgage and if your application is accepted.
Understanding if a mortgage is affordable for you
If you’re looking at a new mortgage, the announcement of stress tests being eased (assuming that it does happen), might be exciting, and could potentially open doors that you had previously though were closed. Still, it is often worth doing your own calculations too, just to make sure that even with any changes things would still be affordable.
Borrowing more will usually mean your mortgage repayments are higher – could you comfortably afford to make these? Do you feel confident you could continue to make the repayments if you faced an unexpected financial shock?
In addition, the higher the mortgage, the more interest you’ll normally pay over the full mortgage term. So, you’ll need to ask yourself if it makes financial sense.
You may decide to opt for a smaller mortgage once you’ve calculated what’s affordable for you, or you might find you agree with the outcome of the lender’s tests and decide to borrow the maximum amount. By taking the time to assess your finances, you can feel confident about your decision.
Are you looking for a mortgage deal? Get in touch
Whatever your reasons for searching for a mortgage, from buying your first home to taking on a renovation project, , we could help find a mortgage that suits your needs. Please get in touch to talk with one of our team.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.