Every Friday, we take an overview of the mortgage market before rounding up the best rates with independent experts from Moneyfacts…
Lenders are facing pressure from the government to help boost growth, and this week some have reduced their stress tests to help people get on the property ladder.
Stress tests are used to evaluate a borrower’s ability to afford their mortgage payments if interest rates increase.
Nationwide became the first major lender to act, adjusting its mortgage affordability calculation by reducing its stress rates by up to 1.25 percentage points.
The change, which doesn’t only benefit first-time buyers but home movers and those remortgaging as well, allows applicants to borrow an average of £28,000 more.
“Taking a more measured approach should give more flexibility to the right customers but still providing balance against over exposing borrowers in future,” says David Hollingworth, associate director at L&C Mortgages.
“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.”
Hodge Bank also reduced affordability stress rate across a variety of products, saying the changes would give the average customer almost 20% more borrowing power.
Joint applicants with a household income of £45,000, for example, can now borrow an extra £38,000.
Rachel Springall, finance expert at Moneyfacts, says the relaxation is welcome but warns stress tests need to be “deployed with care” and not at the “detriment of borrowers down the line”.
“Consumers concerned about their mortgage or struggling to find an affordable home would be wise to seek advice from a broker to assess the latest deals,” she says.
Lenders making rate cuts
Prominent lenders have also cut rates across their fixed products this week.
Santander made reductions of up to 0.18%, Barclays of up to 0.19% and Newcastle Building Society of as much as 0.32%.
Week on week, the average two-year and five-year fixed rates fell to 5.12% and 5.08% respectively, according to Moneyfacts.
Economists are still expecting at least two more interest rate cuts by the Bank of England this year, which could bring mortgage rates down.
Springall says first-time buyers need “support and innovation” from lenders to keep the mortgage market moving.
Products to consider
Here are the lowest first-time buyer deals on the market…
Moneyfacts also picks out “best buys” that look beyond rates to take into account fees and incentives, which could come in handy if you have exhausted your savings for a deposit…
