15-05-2025
Nationwide makes major change to mortgage rules, meaning it can lend home owners more
Nationwide has made a significant change to its mortgage lending rules, which will increase the maximum amount it can hand out to borrowers.
Britain's biggest building society has adjusted its 'stress rates' - the hypothetical higher mortgage rates it tests borrowers' finances against when they apply for a mortgage or remortgage.
Lenders do this to check whether borrowers could still afford their monthly payments if their mortgage rate increased.
Banks have several different stress test rates depending on the mortgage term and other factors.
Commonly, lenders will check that a borrower could pay a mortgage rate two or three percentage points higher than their current one, so if they were applying for a rate of 4 per cent their finances might be tested against a 6 or 7 per cent rate.
Stress rates became common after the 2008 financial crisis, as one of several measures designed to prevent homeowners taking loans that were unaffordable.
However, some industry insiders take the view that stress rates at this level are too harsh, preventing people who could comfortably afford a mortgage from getting one.
How much more could YOU borrow?
Nationwide is reducing its stress rates by between 0.75 and 1.25 percentage points - including both its standard stress rate, and the rate applied to eligible first-time buyers and home movers fixing their deal for at least five years.
It claims that a home mover with a household income of £75,000, who was taking a five or 10-year fixed mortgage on a 25-year term, could previously have borrowed a maximum of £307,000 but could now borrow £336,800 - a £29,800 uplift.
A first-time buyer earning £55,000, taking a five or 10-year fix and using Nationwide's 'helping hand' mortgage, could see their maximum borrowing increase from £304,200 to £330,000 on a 27-year term.
This would be a £25,800 rise and would take the loan from 5.53 times their income to six times.
Someone remortgaging, but not taking any additional borrowing, could previously borrow £235,500 but may now get up to £278,100 - an increase of £42,600. This would be based on them having an income of £45,000 and a 40-year mortgage term.
This would mean their maximum borrowing would have gone from 5.23 times their salary, to 6.18 times.
However, banks are restricted in the amount of loans they can hand out which are more than 4.5 times what the borrower earns. Only 15 per cent of a lender's mortgages can exceed this limit - but Nationwide is calling on the Bank of England to increase it.
David Hollingworth, associate director at broker L&C Mortgages, said: 'Nationwide has a strong focus on first-time buyers and lower stress rates will hopefully help more reach toward the higher end of the maximum six times income, that it can offer through its 'helping hand' proposition.
'Those coming to the end of a deal could also benefit. Customers with concerns that they wouldn't meet a new lender's criteria, due to the higher rate environment, could find that affordability is now more generous than they thought.
'That should open up more choice from the open market rather than necessarily having to stick with an existing lender.'
It is not the first mortgage lender to reduce its stress rates in recent weeks.
Last month, Lloyds Banking Group adjusted its stress rates, claiming the typical customer could borrow £38,000 more. This applies to all banks in the group including Lloyds, Halifax and Bank of Scotland.
This was followed by HSBC and First Direct, which made changes to allow customers to borrow £39,000 more on average. Santander has also made similar adjustments to offer £35,000 more borrowing.
The banks are responding to guidance from watchdog the Financial Conduct Authority, which has said that, as interest rates fall, lenders should make sure they are not 'unduly restricting access to otherwise affordable mortgages'.
Henry Jordan, Nationwide's director of home, said: 'Affordability remains a key challenge and this change, along with our well-established and popular Helping Hand proposition, shows we're serious about tackling it.
'Whilst the FCA's clarification on affordability stress rates could support increased levels of home ownership, the Bank of England's flow limit dampens its potential impact.
'That's why Nationwide continues to call for a review of the 15 per cent limit, so that we, and other lenders, can help more people access the long-term benefits of home ownership.'
Best mortgage rates and how to find them
Mortgage rates have risen substantially over recent years, meaning that those remortgaging or buying a home face higher costs.
That makes it even more important to search out the best possible rate for you and get good mortgage advice.
Quick mortgage finder links with This is Money's partner L&C
> Mortgage rates calculator
> Find the right mortgage for you
To help our readers find the best mortgage, This is Money has partnered with the UK's leading fee-free broker L&C.
This is Money and L&C's mortgage calculator can let you compare deals to see which ones suit your home's value and level of deposit.
You can compare fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes.
If you're ready to find your next mortgage, why not use This is Money and 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.
