With mortgage rates dropping and headlines buzzing, many homeowners and first-time buyers are excited about lower monthly repayments. But there’s more good news that’s flying under the radar, falling interest rates are also increasing how much some buyers can borrow. Yes, you read that right. Not only are your monthly mortgage payments potentially lower, but your maximum borrowing amount may have gone up too.
Why Are Mortgage Loan Sizes Increasing?
When mortgage rates come down, so too can the stress test rates that lenders use to determine how much you can afford to borrow. A lower stress test means a lender sees you as capable of affording a larger loan, even under a theoretical worst-case scenario.
Recently, several major lenders have updated their affordability calculators and reduced stress rates in response to the fall in mortgage interest rates. Nationwide, for example, has confirmed that it’s cutting its stress rates by between 0.75 and 1.25 percentage points. This includes both their standard stress rate and the special rate applied to eligible first-time buyers and home movers who opt for a fixed-rate mortgage of five years or more.
Real-World Examples: How Much More Could You Borrow?
Let’s look at two typical scenarios to show how this change could impact potential borrowers:
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A home mover with a household income of £75,000, taking a five or 10-year fixed mortgage on a 25-year term, could now borrow up to £336,800, compared to £307,000 previously, a boost of £29,800.
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A first-time buyer earning £55,000 and using Nationwide’s Helping Hand mortgage product, could see their maximum borrowing rise from £304,200 to £330,000 on a 27-year term, an increase of £25,800. This shifts their borrowing from 5.53 times their income to six times.
These are significant changes and could make the difference between settling for a smaller property or being able to afford your dream home.
Not All Lenders Are Equal
It’s important to understand that different lenders use different criteria when calculating how much they’re willing to lend. Choosing the right lender – especially in a changing market – can have a big impact on your borrowing potential.
Here are some factors that lenders may treat differently:
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First-Time Buyer incentives – Some lenders are more generous with their mortgage calculators if you’re buying your first home.
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Leasehold vs Freehold – Believe it or not, this can affect how much you can borrow.
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Maintenance payments and school fees – Certain lenders may disregard these expenses entirely.
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Bonus and commission income – Some lenders take an average over several months, some use the most recent figure, others cap what they’ll count, and some don’t cap it at all.
What Should You Do Next?
If you’ve been thinking about buying a home or remortgaging, now could be the right time to explore your options. With rates down and borrowing power potentially up, there’s a unique opportunity to make your money go further. But remember, mortgage deals and stress test rates vary by lender and by individual circumstances. That’s why it’s essential to speak to a qualified mortgage adviser who can guide you to the best lender for your needs.
Need Help Navigating Your Mortgage Options?
We’re here to help. Contact us at Oportfolio Mortgages today for expert advice and to see how much more you could now borrow.
