The Intermediary – August 2025 - Flipbook - Page 20
RESIDENTIAL
Opinion
Flexible affordability
assessments
A
ffordability
assessments can
be one of the
main barriers
facing would-be
homeowners who
may be restricted by their salary
and loan-to-income (LTI) ratios, but
following recent clarification from the
Financial Conduct Authority (FCA)
about stress-testing rules, a number of
lenders have made changes to the way
they assess a borrower’s affordability.
Previous high loan-to-income limits
were restricting many lenders’ ability
to support aspiring homeowners
and the UK growth agenda. But the
refreshed guidance from the FCA
clarified how to incorporate future
interest rate movements into stresstesting. It emphasised that banks and
building societies have flexibility
in choosing a suitable stress rate,
linking to reversion rates or future
product rates, rather than applying a
fixed margin above current standard
variable rates.
At Leeds, we’ve just reduced stress
testing rates by up to 1.24%, meaning
that a borrowers can now access
more lending, and we have lowered
the minimum household income
needed to borrow more than 4.5-times
annual income.
Thanks to the changes, joint or
single applicants earning £30,000
per year will now be able to apply
for a mortgage. This is down
from £40,000 annual income and
significantly broadens access to
the housing market for
many creditworthy
borrowers. With
a 95% loan-tovalue (LTV)
18
The Intermediary
mortgage, a borrower on an income
of £30,000 would be able to purchase
a property worth up to £173,000,
compared to £141,000 before.
What does this mean?
Well first, as a lender, this is hugely
positive news and allows us to
deliver on our purpose of puing
homeownership within reach
of more people, generation aer
generation. The rule clarification
means that we can confidently lend
more to our members and support
their homeownership dreams, while
continuing to assess affordability in
a responsible way, using a range of
criteria and underwriting checks to
ensure prudent lending.
We are mindful of
balancing more generous
affordability with
responsible lending”
Clearly, the changes benefit
borrowers by unlocking more lending
to allow them to step onto or climb up
the property ladder. Reduced stress
buffers also benefit those who are
looking to remortgage. Clients coming
to the end of fixed rates can now access
a wider range of deals and switch
lenders more easily without triggering
income limits.
Avoiding unnecessarily
restrictive affordability
tests, particularly
in a falling
interest rate
environment,
is also
great
MARTESE CARTON
is director of mortgage
distribution at Leeds
Building Society
news for brokers. It means that
intermediaries can say ‘yes’ to more
clients, and revisit affordability on
cases where applications previously
fell short.
This is a great opportunity for
brokers to engage with clients and
educate them on what the changes
could mean for their case. Brokers
can re-run affordability checks,
and we have recently updated our
improved affordability calculator to
facilitate this.
Historically, stress-testing
requirements have unduly held some
borrowers back from achieving their
homeownership aspirations, so we are
pleased to be able to lend more to our
customers as a result of these changes
in affordability assessments.
Despite increased flexibility,
both borrowers and brokers can
be confident that lenders will still
apply robust affordability checks and
underwriting. A lower stress rate
allows lenders to factor in a more a
realistic cushion above a borro
borrower’s
expected monthly costs.
Like all lenders, we are mindf
mindful of
balancing more generous affordability
with responsible lending – balancing
growth and protecting our members.
We welcome the clarifica
cation on
lending rules which will allo
allow us
to help more people achie
achieve their
homeownership dreams and support
the Government’s plan ffor growth.
We will continue to upda
update our
stress rate assumptions and
affordability models tto align
with market conditions and
regulatory expecta
expectations.
In collaboration wit
with our
intermediary partners, w
we’ll
continue to seek the best out
outcomes
for borrowers, as we hav
have done for
150 years. ●
