HSBC says the change could mean 20,000 more customers are able to get a mortgage, alongside being able to borrow larger amounts – and the average increase in offer for first-time buyers will be £39,000
HSBC has announced a major change to how it calculates your ability to afford a mortgage. The high street lender is making changes to its stress test rates from today, for both purchase and remortgage applications.
A stress test is used to determine whether a borrower can afford to continue to pay their mortgage if interest rates rise. This is normally set at a certain percentage point above the lender’s standard variable rate (SVR).
HSBC says the change could mean 20,000 more customers are able to get a mortgage, alongside being able to borrow larger amounts. The average increase in offer for first-time buyers will be £39,000.
Oli O’Donoghue, HSBC UK’s Head of Mortgages, said “We understand the challenges faced by people looking to secure a mortgage. This adjustment to our stress rates, which will directly improve affordability for many aspiring homeowners, reflects our commitment to making homeownership more accessible.
“By carefully reviewing our affordability calculations, allowing more customers to meet affordability criteria and potentially access increased borrowing amounts, we are aiming to ease some of the pressure on prospective buyers so more people can realise their dream of owning their own home.”
It comes after the Financial Conduct Authority (FCA) announced it is looking into simplifying mortgage rules, after being asked by the Government about what steps it is taking to help economic growth. Mortgage lending rules were toughened in 2015 after the 2008 financial crisis.
Santander was the first major lender to reduce its stress test rates and said it means someone applying for a residential mortgage can now borrow between £10,000 to £35,000 more, depending on their individual circumstances.
Lloyds Banking Group has also reduced the stress rates used in its standard affordability calculation and on its five-year fixed mortgages. and said it could mean someone applying for a mortgage could borrow £38,000 more. This includes Lloyds, Halifax, Bank of Scotland and BM Solutions.
Nationwide has reduced the minimum earnings required for its Helping Hand mortgage. The minimum income has been lowered from £40,000 back down to £35,000. The building society had increased it to £40,000 back in January this year, so the decrease takes it back down to its previous level.
Different types of mortgages explained
If you have a tracker mortgage, it means your deal and monthly repayments move in line with the Bank of England base rate. A tracker mortgage usually tracks above the base rate. If you have a standard variable rate (SVR) mortgage then your deal can change at any time, though they do roughly tend to move in line with the base rate too.
SVRs are generally the most expensive type of mortgage. If you have a fixed rate mortgage, it means you have agreed to pay a fixed amount each month for a set period of time. You are normally moved to your lender’s SVR when your fixed deal ends. If your mortgage is due to expire, you should compare rates now and speak to a mortgage broker to look at your options.
Generally speaking, lenders let you secure a new deal around three months in advance. If rates come down, you may be able to cancel the deal you’ve agreed to and sign up to a cheaper rate – but check with your lender before signing up first to see if there are any fees.
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