The UK’s financial services regulator has urged lenders to relax their ‘stress testing’ of those applying for a mortgage and help more people onto and up the property ladder.

The announcement by the FCA, which follows Chancellor Rachel Reeves’ recent efforts to get it to back economic growth, says lenders’ current approach given recent falls in interest rates “may be unduly restricting access to otherwise affordable mortgages”.

This will be welcome news for the property industry, which has for many years pointed out that unduly tough stress testing, particularly of first time buyers, has choked off demand within the housing market. Only a few months ago Zoopla called for these ‘stress test’ rules to be relaxed.

The FCA’s new guidance to lenders says: “Lenders must take account of the impact of likely future interest rates rises on a customer’s mortgage payments (the so-called ‘stress test’) when determining affordability.

Restricting access

“[Lenders] have flexibility to design their test in a way that is appropriate for the customer’s mortgage. Many… add a margin to the lender’s current reversion rate. With interest rates currently falling this may be unnecessarily restricting access.”

To consider further improvements quickly, the FCA is to also launch a call for evidence on current and alternative approaches to stress testing.

In May the FCA will launch a consultation proposing early ideas to simplify its rules and benefit mortgage consumers including making it easier for home owners to remortgage.

Then, in June, the FCA is to begin a public discussion on the future of the mortgage market including what it needs to deliver for different consumers at different stages in their lives and the wider UK economy, and the role of regulation to deliver it.

Nikhil Rathi, Chief Executive of the FCA (main image), says: “We are taking swift action to support people in getting the keys to their own home.

“Firms have the flexibility to help more people become homeowners and we want them to use it.

The FCA’s initiatives have been welcome by Reeves show says: “This is welcome action by the regulator to kickstart economic growth and help working families get on the housing ladder.

“The world is changing. That is why we must go further and faster in delivering on our Plan for Change, so we can get more money into people’s pockets.”