The Independent conducts on-the-ground reporting across issues from reproductive rights to climate change and Big Tech, and funds paywall-free journalism through reader donations. Donations enable journalists to report from both sides of stories, produce documentaries such as 'The A Word', and investigate financial and political subjects. UK Finance proposes that a modest relaxation of mortgage lending criteria, via reduced stress rates, could expand access for first-time buyers without materially increasing arrears. Most borrowers leaving fixed-rate deals currently face rates below earlier stress-test thresholds. Among borrowers now paying above their previous stress-test rate, 1.75% are in arrears versus 0.21% when rates remain below that threshold, while the Bank of England base rate has trended downward.
A carefully measured relaxation of mortgage lending criteria could open the door for more first-time buyers without triggering a significant rise in loan defaults, a leading banking and finance body has suggested. UK Finance's analysis indicates that a modest increase in lending, facilitated by reduced stress rates, could enhance mortgage accessibility, particularly for those entering the property market for the first time, without substantially increasing arrears.
Lenders currently employ stress tests to assess a customer's ability to manage mortgage payments under potential future interest rate hikes, thereby determining affordability. Despite the sharp interest rate increases observed since 2022, the majority of borrowers transitioning from fixed-rate deals have encountered rates below their initial stress-tested thresholds. Furthermore, the Bank of England's base rate has recently shown a downward trend.
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