Lenders could ease “stress test” rule. Here’s why it may mean you can borrow more

02/11/2025

Reports suggest the Financial Conduct Authority (FCA) is encouraging lenders to consider ways to make mortgages more accessible and ease “stress testing”. If you’re a first-time buyer, looking to move up the property ladder or borrow more against your mortgage, it could be good news.

When you apply for a mortgage, the lender has a responsibility to ensure the terms offered are affordable. 

One way they do this is by “stress testing” your finances. This involves assessing how likely you are to default on your mortgage repayments, including if interest rates were to rise. The aim is to ensure borrowers will be able to comfortably meet mortgage repayments throughout the entire mortgage term, rather than simply at the time of application. 

While the FCA requires lenders to carry out a stress test to determine affordability, they have the flexibility to carry out the test in a way that’s appropriate for them and their customers. 

So, some lenders might assess your ability to manage repayments if interest rates increase to a higher rate than others. 

For example, some lenders may test your ability to meet repayments if interest rates increase by 3%, which can make a huge difference to your monthly expenses. 

Let’s say you want to borrow £200,000 over 25 years through a repayment mortgage. At an interest rate of 4.5%, your monthly repayment would be around £1,110. Now, if the lender carried out a 3% stress test, they’d want to be confident you could meet repayments if interest rates were 7.5%, which would mean showing you could meet repayments of £1,478 a month. 

So, even if you could comfortably afford the repayments at 4.5%, your application could be rejected. 

The Financial Conduct Authority is set to call for evidence on stress testing methods

According to a report in the Intermediary, as part of efforts to support home ownership in the UK, the FCA has reminded firms of the current flexibility within its rules to allow creditworthy aspiring homeowners to obtain a mortgage. 

In addition, the FCA is set to call for evidence on current and alternative stress testing methods. 

As interest rates are falling – as of April 2025, the Bank of England has cut the base rate once this year – the expectation is that stress testing rules could be eased. 

What would easing stress tests mean for you?

There’s no guarantee that the FCA will ease stress testing rules, but if they did, it could allow you to borrow more through a mortgage.

As a result, it could help:

• Aspiring first-time buyers who have struggled to find a lender that will approve their application or find a property they could afford to purchase with the mortgage they were offered
• Home movers that want to step up the property ladder and purchase a more expensive home
• Mortgage holders who would like to borrow more against their home to fund other costs, such as investing in an extension or updating the kitchen. 

Keep in mind that other factors will affect how much you can borrow through a mortgage and, indeed, if your application is accepted. 

Understanding if a mortgage is affordable for you

If stress tests were eased, you might be able to borrow more than you expected. While that can be existing and potentially open doors you previously thought were closed, it’s often worth doing your own calculations too.

Borrowing more will usually mean your mortgage repayments are higher – could you comfortably afford to make these? Do you feel confident you could continue to make the repayments if you faced an unexpected financial shock?

In addition, the higher the mortgage, the more interest you’ll normally pay over the full mortgage term. So, ask yourself if it makes financial sense. 

You may decide to opt for a smaller mortgage once you’ve calculated what’s affordable for you.  

Alternatively, you might find you agree with the outcome of the lender’s tests, and decide to borrow the maximum amount. By taking the time to assess your finances, you can feel confident about your decision.

Are you looking for a mortgage deal? Get in touch

Whether you’re preparing to buy your first home or you want to take out a second mortgage to pay for a renovation project, we could help find a mortgage that suits your needs. Please get in touch to talk to one of our team. 

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.