Saffron Building Society has reduced the mortgage Stress Rate on its products from 3% to 2% following the Bank of England’s announcement that it would be scrapped in August 2022.
The 3% Stress Rate was introduced in 2014 as a way of ensuring that borrowers were not approved for debt that they would then not be able to afford to pay back. It has been contested by some in the industry as being too restrictive and causing unnecessary affordability rejections for applicants who could easily afford their repayments.
Saffron’s new reduced Stress Rate has been applied to all residential mortgage products with immediate effect.
Tony Hall (pictured), head of business development at Saffron Building Society, said: “The Stress Rate is important to us as a lender, as it ensures that we are lending responsibly to our broker’s clients. However, the Bank of England’s decision to remove it has allowed us, as lenders, to look at this sensibly to see what rate would work to improve the chance for borrowers to pass affordability, whilst remaining responsible with our lending.”
Saffron said that while the Bank of England has removed the need for the Stress Rate, many lenders have yet to publicly announce a reduction in the rate. But considering the current economic climate, with inflation and recession certain to affect affordability assessments for a large number of applicants, Saffron says now is the right time to review it. Reducing the Stress Rate to 2% would mean that those who would be good mortgage customers are not unnecessarily rejected.
Hall added: “It is all about realism. As a society we pride ourselves on our manual underwriting and common sense approach to lending. This is just another example of that. By keeping the 3% stress rate there is a real possibility that many who would be great mortgage customers will be knocked out in the first round. The 1% drop will make a big difference for some applicants whilst backed up by our expert underwriters will ensure we remain responsible in our lending, providing confidence for both brokers and their clients.”
