Santander has become the first major UK lender to relax its mortgage affordability stress test, allowing some borrowers to access larger loans. The move marks a potential shift in lending practices, as rising rates and affordability pressures reshape the housing market.
The bank’s decision signals growing flexibility in response to regulator guidance and market demand. With house prices remaining high and interest rates stabilising, other lenders may soon follow.
Santander Adjusts Stress Test to Reflect Evolving Market Conditions
Santander has reduced the interest rate buffer applied in its mortgage stress test, the simulation used to assess a borrower’s ability to repay a home loan under adverse conditions. Until now, the bank tested borrowers’ finances assuming a mortgage rate approximately one percentage point above the standard variable rate (SVR).
Under the new approach, it will assess affordability using rates closer to 6–7 per cent, reflecting more realistic market scenarios.
This adjustment could enable some borrowers to qualify for £10,000 to £35,000 more than previously possible, depending on their income and financial profile, according to analysis reported by The Independent. The change follows sustained rises in mortgage rates, which have reduced the amount many prospective buyers can borrow.
The stress test, introduced in 2015 in the wake of the global financial crisis, was intended to reduce the risk of defaults by simulating how borrowers would cope with significant interest rate hikes. While the actual interest rates borrowers pay are typically lower, the buffer ensured lenders remained cautious.
Santander’s decision now reflects a balancing act between financial stability and housing market access, amid a competitive environment and a regulatory shift encouraging lender discretion.
Competitive Pressure May Drive Wider Industry Change
Experts suggest that Santander’s move could set a precedent. David Hollingworth, associate director at L&C Mortgages, stated that easing the stress test for borrowers may “increase the size of mortgage they can access and so could even be the difference in whether they can meet the price of a new home or not”, according to The Independent.
The Financial Conduct Authority (FCA) has recently reminded lenders of their ability to apply more discretion in affordability testing, particularly in light of the government’s emphasis on homeownership as a tool for economic growth.
With the Bank of England expected to lower interest rates later this year, and house prices remaining high, there is an incentive for banks to compete more aggressively for mortgage customers.
However, FCA chief executive Nikhil Rathi cautioned against over-relaxation, telling the House of Lords: “You cannot do both, you cannot relax the rules and have no defaults.” This underscores the regulatory tightrope lenders must walk as they adjust to changing economic and political expectations.
The mortgage stress test change comes just days before stamp duty discounts are reduced, which may prompt a flurry of activity among buyers seeking to maximise affordability before the 1 April threshold change takes effect in England and Northern Ireland.
