Mortgage borrowers are set to face a higher stress tests of their finances when it comes to applying for mortgages ahead of the expected increase in interest rates.
TSB has raised its affordability test rate for new home movers from 7% to 8% while first-time buyers must now prove they could still afford their mortgage if rates rose to 7% up from a previous test of 6%.
A spokesman for TSB said the changes were a result of “market expectations of future interest rates”.
Stress testing was rolled out in the aftermath of the financial crisis to stop banks lending to borrowers who could not afford repayments if rates were to rise in the future.
This is because when fixed deals end borrowers typically revert to their bank’s “standard variable rate”, which usually has a higher rate.
Mortgage brokers warned more lenders would tighten their rules amid forecasts interest rates will keep rising throughout next year.
Jane King, of broker Ash Ridge, said: “So far only TSB have emailed brokers to flag the changes, but other lenders will soon follow suit. Higher stress rates will have a knock-on effect on affordability and mean the maximum loans offered by lenders will be smaller.”