{"id":150842,"date":"2025-06-02T01:10:12","date_gmt":"2025-06-02T01:10:12","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/150842\/"},"modified":"2025-06-02T01:10:12","modified_gmt":"2025-06-02T01:10:12","slug":"bank-of-england-stress-test-changes-could-create-surge-in-first-time-buyers","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/150842\/","title":{"rendered":"Bank of England stress-test changes could create surge in first time buyers"},"content":{"rendered":"

Changes in the way lenders stress test borrowers could increase first-time buyer transactions by up to 24% over the next five years, according to Savills.<\/p>\n

Following a change in Bank of England guidance in March, lenders are no longer required to stress test borrowers at the Standard Variable Rate plus 1% (if borrowers take on a fix of less than five years).\u00a0<\/p>\n

Already, several large lenders have modified the way they apply the affordability test, although their approaches vary.<\/p>\n

Savills has quantified the impact of the new stress test regulations by comparing mortgage costs as a percentage of income under the previous stress-testing criteria, with the outcomes under less stringent interest rate scenarios. This approach identifies how key lending metrics shift when stress tests are applied at different rates to maintain a consistent level of affordability, while maintaining reasonable loan-to-income and loan-to-value ratios.<\/p>\n

The analysis assumes that half to three-quarters of the increased borrowing capacity is added to the borrower\u2019s purchase price, either allowing them to buy something bigger or better or because of house price growth.\u00a0\u00a0<\/p>\n

Relaxed lending rules are expected to increase the number of buyers, which in turn is expected to drive up house prices; the amount depends on how much new housing stock is delivered to meet the additional demand.<\/p>\n

Based on the historical relationship between loan-to value ratios and activity levels, stress tests could increase first-time buyer transactions by +47,000 in a higher house price growth scenario, to +80,000 on a lower price growth scenario (+14% to +24% increase).<\/p>\n

This could cause house prices to rise by an additional +5.0% to +7.5% on top of existing five-year forecasts.<\/p>\n

\u201cRelaxed lending rules will certainly change the course of travel for the housing market in the medium to long term, but there will be a strong interplay between the extent to which house prices and first-time buyer transactions increase. The more increased borrowing capacity impacts prices, the less impact there will be on transactions,\u201d comments Lucian Cook, head of residential research at Savills.<\/p>\n

\u201cChange would not be immediate, with the impact on house prices and transactions likely to take place over a period of five years. The current uncertain economic outlook is likely to hold back buyer confidence and willingness to take on substantially more debt in the short term.\u201d<\/p>\n

\u201cBut in the medium to long term, the market would feel the knock-on impact of a widening pool of buyers. This will be good news for housing delivery but it\u2019s unlikely to be enough to allow the government to hit its housebuilding targets.\u201d<\/p>\n

Baseline Example:<\/strong><\/p>\n

Current stress tested affordability (at 8.25%) comes out at just under 30% of household income for a first-time buyer with an average household income of \u00a362,000 buying a house worth \u00a3260,000.<\/p>\n

Scenario 1 \u2013 Stress test reduced to 7.00%; 50% of additional borrowing is passed on to house prices<\/strong><\/p>\n