It’s always a joy when we can cover how mortgages are becoming more affordable – without even touching on rates. After all, the topic of fluctuating mortgage rates has been done to death over the last couple of years.
Even our team of Guildford mortgage brokers are growing weary of endless news about mortgage rates either going up, or down.
So, rates completely aside, why have mortgages for the masses become more affordable?
Mortgages … with less stress
No, we’re not talking about our clients’ experience of getting a mortgage with us (although we’re sure that they would agree that our team of Guildford mortgage advisers does take the stress out of getting a mortgage).
We’re actually referring to the stress tests which those applying for a mortgage are subject to at the point of application.
The good news is that over recent weeks, lenders have eased the stringency of their stress tests, which, in turn, has made mortgages more accessible and enabled borrowers to borrow more.
What is a mortgage stress test?
Simply put, a stress test is an exercise that lenders apply to every mortgage applicant to test affordability in the event of interest rates increasing and mortgage repayments becoming more expensive.
If a borrower’s income vs outgoings ratio, debt-to-income ratio or loan-to-value ratio doesn’t fare well in the event of interest rates hiking, then a lender is less inclined to lend.
Let’s say you apply for a mortgage based on a rate of 4.50%, a lender will add an extra – and hypothetical – couple of percent on, to see if you’re still able to afford the mortgage repayments should a price hike ever occur.
They’re in place to protect borrowers by ensuring that they don’t run into financial difficulty in the future – and, of course, protect lenders.
Why has the stress test changed?
Everything changes, all the time. And right now, nothing’s changing more dynamically than the economy. However, the stress test hasn’t really mirrored those changes.
Until now, that is, following guidance from the Financial Conduct Authority – the UK’s financial services regulator – which has suggested that an easing of the mortgage stress test is required in order to remove the restrictions that borrowers have faced.
As a result, a swathe of lenders on Complete Mortgages’ panel have just made their mortgage products much more accessible.
Good news for borrowers
If you’re wondering how it might impact you, it means that the property you wanted but perhaps couldn’t afford two months ago may now be in reach.
As lenders aren’t building in such a large margin for defaulting, it means that they will be more inclined to lend. Not only that, but for many people, it means that they will be able to borrow more.
With that in mind, now is a good time to get a mortgage, not only for first time buyers who now have a wider playing field, but also for those looking to make their next move and may have greater borrowing power.
If you’d like an up-to-date appraisal of what you can borrow in the wake of the stress test’s easing, then get in touch.
To discover what you can borrow to buy your next property, contact our mortgage broker in Guildford on 01483 238280 or e-mail info@complete-mortgages.co.uk.
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