Nationwide announces major shake-up to mortgage rules meaning homeowners can borrow more

Nationwide has reduced stress rates by up to 1.25 percentage points in a significant boost for millions.

The change comes as several major lenders have relaxed their affordability calculations in recent weeks, potentially opening up homeownership to thousands more people who previously struggled to secure sufficient financing.

Nationwide's adjustment to its mortgage affordability calculation means applicants will be able to borrow, on average, £28,000 more from today. In some remortgage cases, customers could access up to £42,600 more.

The building society is reducing both its standard stress rate and the rate applied to eligible first-time buyers and home movers who fix their mortgage deal for at least five years.

The change will benefit all types of borrowers, with specific examples showing the potential impact.

A first-time buyer earning £55,000 using Nationwide's Helping Hand mortgage could see their maximum borrowing increase from £304,200 to £330,000 – a £25,800 rise.

A home mover with a household income of £75,000 taking a five or ten-year fixed mortgage could now borrow up to £336,800, compared to the previous limit of £307,000.

Those remortgaging stand to gain the most, with someone earning £45,000 potentially able to borrow up to £278,100, a substantial increase of £42,600.

Stress rates are hypothetical higher mortgage rates that lenders use to test borrowers' finances during mortgage applications. They check whether applicants could still afford monthly payments if rates increased.

Typically, lenders test if borrowers could manage payments at rates two or three percentage points higher than their current one. These tests became common after the 2008 financial crisis.

Nationwide has been able to make this change following recent rule clarification from the Financial Conduct Authority, which confirmed lenders can stress affordability with reference to product rather than revert rates.

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Nationwide is not the first major lender to adjust its stress rates. Last month, Lloyds Banking Group made similar changes, allowing customers to borrow approximately £38,000 more across its brands, including Lloyds, Halifax and Bank of Scotland.

HSBC and First Direct followed suit, enabling customers to borrow an average of £39,000 more, with HSBC claiming 20,000 additional customers would now qualify for mortgages.

Santander was actually the first major lender to reduce its stress test rates, offering borrowers between £10,000 and £35,000 more, depending on individual circumstances.

Henry Jordan, Nationwide's Director of Home, said: "Affordability remains a key challenge and this change, along with our well-established and popular Helping Hand proposition, shows we're serious about tackling it.

"Whilst the FCA's clarification on affordability stress rates could support increased levels of home ownership, the Bank of England's flow limit dampens its potential impact."

Nationwide continues to call for a review of the Bank of England's 15 per cent flow limit on mortgages exceeding 4.5 times income, arguing this would help more people access homeownership.