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Mortgage Borrowing Boost: Lloyds Banking Group Eases Lending Criteria
Lloyds Banking Group has adjusted its mortgage regulations, potentially enabling typical households to borrow approximately £38,000 more. This policy adjustment may enhance the financial capacities of homebuyers seeking mortgages from institutions within the group, including Lloyds Bank, Halifax, Bank of Scotland, and BM Solutions.
The bank indicates that average clients could experience an increase of around 13 percent in the maximum loan amount accessible.
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For instance, a family comprising two adults and two children, with a combined household income of £75,000 and without substantial credit commitments, might be eligible for an additional £38,000 in mortgage funds. This projection assumes a 25 percent deposit for purchase or remortgaging and opting for a two-year fixed-rate mortgage over a 25-year term.
This decision follows a similar move by Santander last month, which also loosened its mortgage affordability assessments, allowing customers to borrow up to £35,000 more.
These modifications are a consequence of lenders revising their ‘stress test rates’.
Understanding Mortgage Stress Test Rates
When evaluating a mortgage application, banks employ a stress test rate to ascertain if borrowers can maintain payments if interest rates increase. Typically, lenders assess a borrower’s capacity to manage mortgage payments at rates up to three percentage points higher than their initial rate. For example, with a 4 percent initial rate, financial stability could be evaluated against a 6 or 7 percent rate.
Effective immediately, for Lloyds group borrowers choosing a five-year fixed-rate mortgage for home purchases, the stress test rate will be set at 4.5 percent, or the starting mortgage rate plus 0.5 percent. Previously, this was assessed against a 5 percent rate.
Those opting for a two-year fixed-rate mortgage will still be evaluated against 5.5 percent, or their starting mortgage rate plus 2 percent.
For borrowers undertaking a like-for-like remortgage, the stress test rate on a two-year fixed-rate mortgage will decrease to 5 percent from 5.5 percent, or their starting rate plus 0.5 percent.
Similarly, for a five-year fixed-rate remortgage, the stress test rate will be 4.5 percent, reduced from 5 percent, or their starting rate plus 0.5 percent.
Last month, Santander reduced all its stress test rates by 0.75 percent, achieving the lowest levels since 2022.
Industry Expert Perspective
Aaron Strutt from Trinity Financial, a mortgage broker, believes this adjustment is substantial and will facilitate easier access to larger loans for individuals aiming to join the property ladder, remortgage, or relocate.
Strutt commented, “The current stringent mortgage affordability stress tests pose a significant challenge, leading to potential borrowers being incorrectly deemed unable to afford mortgages.”
He added, “Following Santander’s recent similar adjustments, it is probable that other lenders will also ease their lending criteria.”
“While numerous schemes assist first-time buyers and high-income earners in securing more substantial mortgage loans, families often struggle to borrow the required amount.”
“Many lenders are inclined to offer more generous loan sizes, but affordability regulations have hindered this. Recent governmental shifts appear to have influenced this situation.”
Impact on Homebuyers
Sean Horton, Managing Director at Respect Capital, suggests that reducing stress test rates will broaden opportunities for numerous homebuyers.
He stated to Newspage news agency, “Halifax’s mortgage affordability policy changes represent a positive evolution in lending behavior.”
“For many, this elevated borrowing potential addresses the financial constraints that previously compelled compromises on location or property size.”
This announcement follows Moneyfacts’ disclosure that the availability of mortgage deals for those purchasing with a 5 percent or 10 percent deposit has reached its highest point since the financial crisis.
Justin Moy, Managing Director at EHF Mortgages, commented, “Increased lender flexibility in affordability offers is a welcome support for first-time buyers and others active in the current market.”
“Halifax joins lenders like Santander and Nationwide Building Society in providing additional funds based on stable payments over five years. This increases buyer choices in properties and can be crucial for first-time buyers entering the property ladder.”
“Given the diminishing rental options across the UK, ownership options are increasingly vital for those seeking greater control over their living situation.”
Aaron Strutt of Trinity Financial reiterates that all homebuyers stand to gain from these revisions, potentially marking the difference in acquiring their desired home.
“Many individuals identify properties of interest and subsequently utilize lender affordability calculators to assess mortgage feasibility,” Strutt explained.
“Currently, numerous individuals are unable to secure sufficient funds, necessitating engagement with specialist, more costly lenders or compromising on property choices and borrowing less.”
“This affordability adjustment should reduce the need for extensive lender comparisons and enable more people to acquire their desired property. It may also lessen the requirement for substantial deposits.”