Nationwide is reducing its mortgage stress test rates by up to 1.25 percentage points, a move expected to increase average borrowing potential by around £28,000 per applicant.
The country’s largest building society said the change, effective immediately, would benefit all categories of borrowers – from first-time buyers and home movers to those remortgaging. It applies to both its standard stress rate and a lower rate available to those taking out a fixed-rate mortgage of five years or more.
According to Nationwide, the most significant uplift in borrowing is likely to be seen on remortgages with no additional borrowing. These cases are not subject to the 4.5 times loan-to-income (LTI) flow limit imposed by the Bank of England’s Financial Policy Committee and therefore allow for more flexibility.
The adjustment follows a recent clarification from the Financial Conduct Authority (FCA), which confirmed that lenders could assess affordability based on the fixed product rate itself rather than a higher assumed revert rate. This has given lenders more leeway in calculating how much a customer can responsibly borrow.
EXAMPLE INCREASES
ustrative examples provided by Nationwide show the potential scale of the impact. A first-time buyer eligible for the lender’s Helping Hand scheme, earning £55,000 and fixing for at least five years, could now borrow up to £330,000 – up from £304,200 – representing an increase of nearly £26,000. For a home mover with a household income of £75,000, the borrowing capacity could rise by almost £30,000 to £336,800. The biggest jump is for a remortgaging customer with a £45,000 income, who could now access £278,100 – more than £42,000 higher than before.
Helping Hand, which allows eligible first-time buyers to borrow up to six times their income at up to 95% loan-to-value, remains a key plank of Nationwide’s strategy to tackle affordability constraints. However, lending at high income multiples is subject to the Bank of England’s flow limit, which restricts loans above 4.5 times income to no more than 15% of a lender’s total new business.
Henry Jordan, Nationwide’s director of home, warned that while the FCA’s clarification could unlock greater affordability for borrowers, its impact would be constrained without regulatory reform.
“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,” he said. “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% limit, so that we, and other lenders, can help more people access the long-term benefits of home ownership.”
David Hollingworth, associate director at L&C Mortgages, said: “We’ve seen lenders respond quickly to the FCA clarification around lender flexibility in how they set their stress rates. Nationwide is the latest major lender to alter its approach, again with the aim of giving more borrowers the chance of accessing a larger borrowing.
“Affordability remains one of the key areas preventing customers turning their homebuying aspiration into a reality. Stress rates help build in some headroom to homeowners’ monthly budget, allowing them to better deal with rising rates. Taking a more measured approach should give more flexibility to the right customers but still providing balance against over exposing borrowers in future.
“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 6x 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.”
Nationwide supported more first-time buyers than any other lender in 2024, and has been vocal in its call for a rethink of the flow limit as a way to help more aspiring homeowners onto the property ladder.
Despite the changes, the lender confirmed it will continue to apply a full range of underwriting checks to ensure responsible lending standards are maintained.
