UK Lenders Ease Affordability Rules as Mortgage Approvals Rise

UK mortgage lending is entering 2026 with a noticeable shift in tone: more lenders are tweaking affordability models (especially interest-rate “stress tests”), and overall buyer demand is holding up, with mortgage approvals staying around mid-60,000s after reaching a 2025 high.

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Why Lenders Are Revisiting Stress Tests

Affordability checks have not disappeared, but the way lenders interpret them has become more flexible. A key driver has been the Financial Conduct Authority’s guidance reminding firms they have discretion in how they apply the interest rate stress test rule, as long as they remain responsible and take account of future rate rises when assessing affordability.

In December 2025, the Financial Conduct Authority said the industry’s use of that flexibility has widened borrowing options, with the effect that many borrowers can be offered around £30,000 more than before (though outcomes vary by lender, product, deposit, credit profile, and wider commitments).

UK Finance has also said that, following the Financial Conduct Authority’s clarification on stress testing, lenders representing more than 85% of the market updated their approaches, and typical borrowers may be able to borrow up to £35,000 more.

What does “easing affordability rules” look like in practice? Often it means the stressed interest rate used in the affordability calculation is reduced, or is tailored more closely to the mortgage a customer is actually taking (for example, a longer fixed rate may be assessed differently to a short fix). Some lenders have also refined how they treat childcare costs, committed credit, and variable income, using more granular evidence (like a stable track record of payments) rather than blunt assumptions.

One high-profile example in 2025 was Santander, which reported changes to its affordability calculations that could allow some borrowers to access more borrowing, including through a lower internal stress rate. Any such change still remains subject to full eligibility and affordability checks.

Mortgage Approvals Suggest Demand Is Holding Up

Approvals are not completions, but they are a widely watched early indicator of pipeline demand. After rising through late summer 2025, approvals stayed comparatively resilient through autumn, even with tax and policy uncertainty in the background.

In September 2025, the Bank of England reported net mortgage approvals for house purchase increased to 65,900.

For the latest available month at the time of writing, the Bank of England reported net mortgage approvals for house purchase at 64,500 in November 2025, while approvals for remortgaging with a different lender rose to 36,600.

Rates matter here too. In the same Bank of England release, the effective interest rate on newly drawn mortgages was reported at 4.20% in November 2025.

Alongside approvals, broader lending data points to improving momentum versus earlier periods. The Financial Conduct Authority’s mortgage lending statistics (Q3 2025 edition) reported the value of new mortgage commitments at £79.4 billion, and gross mortgage advances of £80.4 billion in that quarter.

Key Numbers

Mortgage Market Activity (Latest Bank of England “Money and Credit” Data: November 2025, Published 5 January 2026):

• Net mortgage approvals for house purchase: 64,500

• Approvals for remortgaging with a different lender: 36,600

• Effective interest rate on newly drawn mortgages: 4.20%

Bank Rate (Latest Decision):

• Bank Rate reduced to 3.75% (Monetary Policy Committee vote: 5–4)

Affordability Flexibility (Regulatory Commentary):

• Industry use of stress test flexibility can mean around £30,000 more borrowing for many borrowers (outcomes vary)

Figures as of 25 January 2026 London

The Guardrails: What Has Not Been “Relaxed”

It is easy to hear “easier affordability” and assume the market is returning to pre-2022 lending. That is not the reality. Most lenders still apply buffers, and regulators have been clear that flexibility should be used to support access to affordable mortgages, not to encourage unaffordable stretching.

A key backstop in the owner-occupier market is the loan-to-income (LTI) flow limit. In a UK Parliament written answer published in September 2025, the LTI flow limit was described as restricting the share of new mortgages at or above 4.5 times income, with a system-wide cap of no more than 15% of new owner-occupier lending at those high LTIs.

The implementation of that limit has also been adjusted to work more proportionately across lenders, while keeping the aggregate cap consistent with the 15% limit.

In other words: lenders may be able to lend more to some borrowers due to stress test changes, but there are still structural constraints designed to prevent a broad-based surge in very high income-multiple lending.

What This Means for Buyers, Remortgagers, and Landlords

For first-time buyers, slightly easier affordability can be the difference between a flat and a small house, or between buying now and waiting. But it is still heavily deposit-driven: a lower loan-to-value generally improves both choice and pricing, while a higher loan-to-value can tighten lender appetite even if affordability models have improved.

There are also signs affordability pressures have eased compared to the peak-rate period, partly because earnings have risen faster than house prices in many areas and mortgage rates have fallen from their highs. Nationwide reported an improvement in its first-time buyer house price to earnings ratio to 4.7 in 2025, and said first-time buyer activity over the last year was around 20% higher than 2024 levels.

For home movers, the practical impact is often about “headroom”. If a lender’s stress rate reduces, some borrowers may find they can pass affordability for the same loan with more comfort, or potentially borrow a little more to cover a bigger property or extra costs. That said, stretching to the maximum can be risky if household bills rise, childcare costs increase, or income changes.

For remortgagers, easing criteria can matter most when a borrower’s circumstances have changed since they took their last deal (for example: moving from salaried to contract income, becoming self-employed, returning from overseas, or having childcare costs). It can also help borrowers who need to switch lender rather than take a product transfer, because a new lender will typically reassess affordability from scratch.

For buy-to-let landlords, affordability is assessed differently, often based on rental coverage ratios rather than personal income alone. However, the theme is similar: if a lender’s stress rate assumptions come down, the same rent may support a higher loan amount, or improve the chance of passing affordability—particularly relevant when refinancing. Borrowing remains subject to rental demand, void risk, and the possibility that rates do not fall as quickly as markets expect.

Risks to Keep in Mind When Borrowing Power Increases

Higher permitted borrowing is not the same as “safe” borrowing. Even with lenders’ stress tests, real life can deliver surprises: redundancy, illness, relationship breakdown, or simply a higher-than-expected run of essential costs.

Rate risk still matters. The Bank of England reduced Bank Rate to 3.75% in its December 2025 decision, but the Monetary Policy Committee’s close vote underlines that inflation risks have not vanished and future changes depend on the data.

It is also worth remembering that a larger loan can mean:

• Higher total interest over time (especially if you extend the term)

• Less flexibility if property prices fall and you need to move

• More sensitivity to future product pricing when your fixed deal ends

If you are considering longer terms to pass affordability (common for younger buyers), it can be a sensible short-term strategy if paired with a realistic plan to overpay when affordable, review regularly, and avoid locking into an unmanageable lifestyle budget.

How to Use the Current Window Without Overstretching

The current environment rewards preparation. With lenders competing on rates and criteria, the borrowers who tend to fare best are those who can evidence stability and reduce “unknowns” in their application.

Practical steps that can help:

• Build a budget that includes an “unpleasant surprises” buffer (not just the mortgage payment).

• Check your credit file early and correct errors before applying.

• Be clear on your income evidence if you are self-employed, contracted, paid in foreign currency, or paid via multiple sources.

• Consider the trade-offs between a longer fixed rate (payment stability) and a shorter fix (often lower initial rate, but more refinance risk).

• If you are remortgaging in 2026, start reviewing options well ahead of your end date so you have time to compare product transfers versus switching.

Mortgage One is a qualified mortgage adviser and appointed representative of Quilter Financial Services Ltd. Mortgage One can help you weigh up timing, affordability, and the pros and cons of different approaches based on your circumstances, including cases involving variable income, overseas earnings, or buy-to-let portfolios.

The information provided in this article is for general guidance only and does not constitute personal or regulated financial advice. If you’d like to understand what these moves could mean for you, speak to Mortgage One. We can explain your options and timings based on your specific circumstances.

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

FAQs

1. What does it mean when lenders ease affordability rules?
   It usually means lenders adjust how they calculate affordability—often by changing the interest rate “stress test” used to check whether you could still afford payments if rates rose. It does not remove affordability checks, and you still need to meet eligibility and credit requirements.

2. Will easier affordability checks let me borrow more?
   Potentially, yes—but it depends on the lender, your deposit, income, credit profile, and existing commitments. Some borrowers may see higher borrowing potential, while others may see little change.

3. Are mortgage approvals rising in the UK?
   Approvals increased to a 2025 high around late summer and have remained relatively resilient through autumn, based on recent Bank of England releases. Approvals can move month to month and do not guarantee completed purchases.

4. Does the loan-to-income limit still restrict high multiples?
   Yes. There is still a system-wide cap limiting the share of new owner-occupier mortgages at or above 4.5 times income, which acts as a guardrail even if some lenders’ affordability models have become more flexible.

5. Does this help first-time buyers more than remortgagers?
   It can help both. First-time buyers may benefit if stress tests become less restrictive, but deposit size remains crucial. Remortgagers can benefit where changing circumstances mean a new lender’s affordability test would otherwise be difficult to pass.

6. Do buy-to-let landlords benefit from eased affordability rules too?
   Sometimes. Buy-to-let affordability is often linked to rental coverage calculations. If a lender’s stress rate assumptions change, it may affect how much you can borrow, but outcomes vary and depend on rent, costs, and product terms.

7. What should I do if my fixed rate ends in 2026?
   Start planning early. Compare product transfer options with switching lender, check affordability under today’s rules, and review how different deal lengths would affect both monthly payments and future refinance risk.