It aims to improve the chance for borrowers to pass affordability checks
Saffron Building Society has lowered the mortgage stress rate on its products from 3% to 2%, becoming the first lender to publicly announce a drop across its residential products.
Saffron said the new reduced stress rate has been applied to all residential mortgage products with immediate effect.
The 3% stress rate was introduced in 2014 as a way of ensuring that borrowers were not approved for debt that they would then not be able to afford to pay back. However, the lender noted that it has been contested by some in the industry as being too restrictive and causing unnecessary affordability rejections for applicants who could easily afford their repayments.
While the Bank of England has removed the need for the stress rate, many lenders have yet to publicly announce a reduction in the rate. Considering the current economic climate, with inflation and recession certain to affect affordability assessments for many applicants, Saffron believes now is the right time to review it. Reducing the stress rate to 2%, the lender said, would mean that those who would be good mortgage customers are not unnecessarily rejected.
Read more: Bank of England scraps affordability test.
“The stress rate is important to us as a lender, as it ensures that we are lending responsibly to our broker’s clients,” Tony Hall (pictured), head of business development at Saffron Building Society said. “However, the Bank of England’s decision to remove it has allowed us, as lenders, to look at this sensibly to see what rate would work to improve the chance for borrowers to pass affordability, while remaining responsible with our lending.
“It is all about realism. As a society we pride ourselves on our manual underwriting and common-sense approach to lending. This is just another example of that.”
Hall added that by keeping the 3% stress rate, there is a real possibility that many who would be great mortgage customers will be “knocked out in the first round.”
“The 1% drop will make a big difference for some applicants while back up by our expert underwriters will ensure we remain responsible in our lending, providing confidence for both brokers and their clients.”