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New Borrowing Potentials: Virgin and Clydesdale Banks Lead the Way
In a notable shift within the mortgage lending landscape, Clydesdale Bank and Virgin Money have become the latest lenders to relax stress test conditions, ultimately enabling prospective borrowers to secure up to £40,000 more than previously possible. This change has been initiated for both variable and fixed-rate residential mortgages that span terms of less than five years. Borrowers, particularly those in stable financial positions, are set to benefit from more favorable borrowing limits.
Understanding the Impact of Eased Stress Tests
According to new guidelines, a couple with a combined income of £85,000 could see their maximum borrowing capacity increased significantly. This easing of stress tests aligns with similar trends observed at other banks, such as Barclays, which recently made adjustments to its affordability calculations, allowing its customers to borrow an additional £31,000 on average.
The Role of Regulatory Bodies
The backdrop to these changes is the recent commentary from the Financial Conduct Authority (FCA), which asserted that lenders have been overly cautious in granting home loans, particularly to first-time buyers. Following discussions with the Treasury Committee, FCA chief Nikhil Rathi emphasized that lenders do have flexibility in their stress testing protocols, yet many have hesitated to take advantage of it.
Balancing Growth and Risk in Lending
While lenders are now relaxing their borrowing criteria, they remain constrained by the Bank of England’s longstanding cap on high loan-to-income lending, which limits the number of high-risk loans they can issue. This duality creates a complex scenario: even as more borrowers qualify under updated affordability assessments, the volume of loans available remains limited.
Potential Market Consequences and Opportunities
This shift towards increased availability could herald a new chapter for first-time buyers eager to enter the housing market. However, experts suggest it could also lead to inflationary pressures on housing prices, particularly in regions where supply is already limited. With more buyers in the mix, the landscape could experience substantial change — bringing both opportunities and challenges.
In light of these developments, financial institutions and service providers must stay informed about the rapidly evolving mortgage landscape, ready to adapt their offerings and strategies accordingly.
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