Nationwide changes affordability rules to help mortgage prisoners

Mortgage prisoners stuck paying expensive rates may find it easier to remortgage to cheaper deals after Nationwide announced changes to its affordability rules.

The building society has relaxed some of the criteria homeowners must meet before they can remortgage, as long as they are looking simply to switch their mortgage and don’t want to borrow any extra cash.

When remortgaging, lenders not only look at whether applicants can afford their mortgage based on today’s interest rates, but also whether they’d be able to cover monthly payments should rates rise in future. This is known as a ‘stress test.’ Some of these test rates can be as high as 7% or more, which can make it difficult for people who are currently trapped paying expensive standard variable rates with inactive or unregulated lenders to remortgage.

These tighter lending rules were introduced as part of the Mortgage Market Review in 2014, to ensure that lenders don’t offer mortgages to people which they can’t afford to pay off. However, the city regulator the Financial Conduct Authority announced in October last year that lenders could choose to use an alternative approach to help those trapped in their current deals.

Nationwide’s affordability changes explained

Nationwide has confirmed that on any like for like remortgage lending, where homeowners aren’t seeking to borrow any additional funds, it will now apply a lower stress test of 1% above its standard mortgage rate. The building society’s standard mortgage rate is currently 4.24%, so the new stress rate is 5.24%.

Previously, the society applied a stress test of 3% above the standard mortgage rate, equivalent to a rate of 7.24%. The lower stress rate means more homeowners should be able to pass the Society’s affordability criteria, enabling them to remortgage to more competitive rates than they’re currently paying.

Applicants won't be able to benefit from a lower rate stress test if they have more than one mortgaged property, or if they need to borrow extra to repay an Early Repayment Charge (ERC) on their existing mortgage. However, if a product fee applies, this can be added to the mortgage.

Henry Jordan, director of mortgages at Nationwide Building Society, said: “Affordability can be a barrier to better mortgage rates, even when applicants are able to demonstrate a clean payment history. This change improves access to our competitively priced remortgage products for such borrowers, whilst maintaining a prudent, responsible approach to affordability assessment.”