Summary
Mortgage stress tests are an important thing to consider when you're thinking of borrowing money to buy a home. Whether you're a first-time buyer or moving for the umpteenth time, you'll find that the mortgage market is moving fast. Factors such as economic conditions, your age, loan-to-value ratios, and income type all influence your borrowing options – making expert advice more valuable than ever.
The Changing Landscape of Mortgage Affordability Assessment in the UK: The Mortgage Stress Test
In recent years, the UK mortgage market has undergone significant changes in the way lenders assess borrowers’ ability to afford their loans.
In this article we look at the current state of mortgage stress testing in England and Wales, with special focus on how recent developments – most recently increased Stamp Duty Land Tax (SDLT) charges and the increasing availability of ultra-long-term mortgages – have shaped the property market in 2025.
From Required to Optional: The Mortgage Stress Test
Following the 2008 financial crisis, regulatory bodies in the UK implemented strict affordability measures to prevent another housing market collapse.
The Bank of England’s Financial Policy Committee (FPC) introduced mandatory stress tests requiring lenders to verify that borrowers could still afford their mortgages even if interest rates rose substantially above their initial rate- typically at least 3 percentage points above the standard variable rate (SVR).
However, the summer of 2022 saw an important change when the Bank of England removed the requirement for stress tests to be mandatory. This change, highlighted in publications like Cunningtons’ article The End Of Mortgage Stress Testing, did not abolish affordability assessments altogether, but allowed individual lenders to exercise more discretion.
The Regulatory Landscape Today
Despite the removal of the compulsory stress test, some safeguards remain in place:
- FCA Requirements: Lenders must still comply with the Financial Conduct Authority’s (FCA’s) Mortgage Conduct of Business (MCOB) rules, which require thorough affordability assessments.
- Loan-to-Income (LTI) Limits: The FPC’s loan-to-income limit continues to restrict the proportion of mortgages that lenders can issue at high loan-to-income ratios (typically above 4.5 times income).
- Lender-Specific Policies: Most established lenders have maintained their own versions of mortgage stress testing, though with varying degrees of strictness.
Increases in SDLT Across the Board
The reduction in thresholds at which buyers start paying Stamp Duty Land Tax in April 2025 has added another layer of complexity to the mortgage affordability landscape. They instigated a rush to complete home purchases in full before the April deadline, and looking at the calculator below tells you why.
You can see why it was such a busy time for everyone involved in the UK property market, from estate agents and conveyancing solicitors to moving companies and surveyors. There was quite a bit of money on the line.
SDLT Impact Calculator
SDLT Impact Calculator: Pre-2025 vs. April 2025 Rates
Compare how the April 2025 SDLT changes affect different property values and buyer types
Impact on Deposit
With an increased SDLT of £0, buyers would need to allocate this additional amount from their savings.
Deposit Impact Scenarios
First-Time Buyer Relief: No SDLT up to £300,000, then 5% up to £500,000. If the property costs over £500,000, standard rates apply instead.
Additional Property Rate: You’ll usually pay 3% on top of normal SDLT rates if buying a property means you’ll own more than one.
Non-UK Resident Surcharge: An additional 2% is applied if you’ve been present in the UK for less than 183 days during the 12 months before your purchase.
This calculator uses example rates for April 2025. Actual 2025 SDLT rates may differ.
Always consult with a professional adviser for accurate calculations based on your specific circumstances.
Impact of April 2025’s SDLT Changes
The increase in Stamp Duty Land Tax rates in April 2025 has added another layer of complexity to the mortgage affordability landscape.
These increased tax burdens have had several notable effects:
Reduced Deposit Capabilities
With buyers directing more funds toward their SDLT payments, many now approach lenders with smaller deposits relative to property values.
This has resulted in:
- Higher demand for larger loan-to-value (LTV) mortgages;
- Increased risk profiles for lenders; as well as
- More applications requiring stricter assessments, as more funds are allocated to SDLT.
It remains to be seen whether this increase in SDLT will result in a decrease in average house prices.
Revised Affordability Calculations
Lenders have begun adjusting their affordability models to account for the impact of increased SDLT, which had been flagged up for some time before implementation in April 2025.
Market-leading mortgage lenders now frequently:
- Factor in borrowers’ financial resilience in the light of increased SDLT rates;
- Assess borrowers’ access to additional funds after completion; and
- Consider the impact of those higher initial costs on financial stability during the first years of the mortgage term.
Effects on Different Types of Borrower
The increased SDLT burden has also widened the gap between different borrower types:
- First-time buyers using specific programmes such as the First Homes scheme, now face different stress test criteria;
- Those looking to buy investment property encounter more rigorous assessments because of combined higher SDLT rates, more aggressive legislation, and rental market uncertainties; and
- Even existing homeowners who are planning to move are experiencing significant shifts in affordability assessments.
The Rise of Ultra-Long Mortgages
Perhaps the most striking development in the current UK housing market is the proliferation of extended mortgage terms.
While 25-year terms were once standard, products now routinely offer:
- 35-year terms as a standard option;
- 40-year products gaining significant share of the market;
- Some lenders even offering 50-year mortgages, often structured as tenants-in-common arrangements (sometimes called 'multigenerational' mortgages in marketing materials).
Stress Testing Adaptations for Longer Terms
These extended terms have necessitated fundamental changes to how affordability is assessed.
Retirement Income Assessment
With many borrowers now expecting their mortgages to extend well into retirement, lenders have developed more sophisticated approaches to analysing post-retirement income, including:
- Requirement for detailed pension projections;
- Assessment of investment portfolios;
- Details of potential inheritances; and
- Evaluation of property downsizing possibilities.
Impact on Mortgages That Span The Generations
These arrangements are typically structured using tenants-in-common ownership, where family members own defined shares of the property rather than equal shares. This structure allows each party to own a specific percentage (such as parents owning 70% and children 30%), with the flexibility to pass their share to chosen beneficiaries through their Wills.
These tenants-in-common mortgages, which may extend for 40-50 years, require lenders to consider a number of different arrangements:
- An assessment of the potential inheritors' financial stability;
- Legal consequences of multigenerational lending;
- Stress testing across multiple potential borrowers;
- Estate planning implications, as a mortgaged property is increasingly part of an inheritance.
Real-World Impact: Who Benefits and Who Loses?
The current optional stress testing environment, along with SDLT increases and longer mortgage terms, has created clear winners and losers in the market.
Winners
- High-income borrowers in a stable profession: Professional services workers with clear career progression paths often find lenders more willing to apply flexible stress testing.
- Bank-of-Mum-and-Dad supported buyers: Those with financial support from their family can often overcome stress test hurdles by arranging family guarantors.
- Existing homeowners with substantial equity: Those with lower LTV mortgages typically require less rigorous stress testing.
Losing Out
- The self-employed: Despite comprising an increasing portion of the workforce, these borrowers face inconsistent and often more demanding stress tests.
- Those with variable incomes: Buyers with commission-based or seasonal income continue to face particularly conservative assessment from potential lenders.
- First-time buyers: FTBs are squeezed from both sides: higher SDLT costs (despite various relief programs) and cautious lending attitudes.
- All buyers without family networks: The rise of tenants-in-common mortgages (increasingly sold as 'multigenerational' mortgages) and guarantor arrangements excludes those without close or financially stable families. This disadvantages those with estranged relatives, poorer families, or those whose relatives are unwilling to help with their mortgage.
Future Trends
As we move through 2025, several trends are emerging that suggest where mortgage stress testing may be going:
1. Technology-Enhanced Assessment: Open banking and AI-driven affordability models are allowing more nuanced, personalised stress testing that goes beyond simple multiples of income. They allow a fuller picture of an individual borrower’s income and spending patterns to create a fairer picture of their financial viability. In an era where ‘jobs for life’ are increasingly rare, such changes are inevitable.
2. Potential Rule Changes: As property becomes increasingly unaffordable, the FCA might reassess their current rules. They may find that allowing lenders to set their own affordability rules is not working well for homebuyers, and that a change in its guidelines is required.
3. Climate Change Considerations: Mortgage lenders have begun incorporating energy efficiency factors into their stress tests, as they know that higher-cost, energy-inefficient properties represent increased financial risk as energy costs rise and potential future legislation impacts property values.
The Global Context: Housing is Not Just a UK Problem
It's important to recognise that the UK's housing affordability challenges are not occurring in isolation. Since around 2010, and accelerated by the COVID-19 pandemic, housing costs have exploded worldwide, creating similar pressures across diverse economies.
The United States, China, Europe and Australasia have all experienced their own housing crises, with housing affordability becoming a decisive electoral issue in many countries. Multiple factors have contributed to this global phenomenon: the interconnected global economy with its booms and busts, climate change rendering some areas uninhabitable, ageing populations, the proliferation of short-term holiday lets, inadequate housing supply, as well as changing migration patterns.
This global context is essential when considering how the mortgage stress test has evolved in the UK. Its shift from mandatory to discretionary stress testing shows one nation’s attempt to balance the ability to own a home with national financial stability in what is essentially a global housing challenge.
What Does This all Mean For Finding a Mortgage?
The mortgage stress test in England and Wales has evolved from a rigid, mandatory system to a more flexible approach which has had to change to suit both borrower and lender. Recent developments—such as increased SDLT charges and the normalisation of very long mortgage terms—have further reshaped how lenders assess affordability.
For prospective borrowers, the current environment offers both opportunities and challenges, depending on their situation. The removal of mandatory mortgage stress testing has meant that there is more variety in available mortgage products, including complex family arrangements like tenants-in-common mortgages. This makes it vital that those shopping for a mortgage spend increasing time and effort choosing between the loans on offer.
As mortgages become less 'one-size-fits-all' and more personalised, independent professional guidance becomes increasingly valuable. Working with professional mortgage advisors can help you navigate this complex market and identify the right product that suits your specific circumstances.
How Cunningtons Can Help You
For those potential buyers navigating this complex mortgage landscape, professional conveyancing support can be crucial.
At Cunningtons, our conveyancing expertise can support you through every step of the property purchase process, helping you navigate this evolving terrain with confidence. We aim to ensure you find the perfect housing solution that suits you and yours for the long term.
Contact your local property conveyancing specialists in Braintree, Brighton, Chelmsford, Croydon, Hornchurch or Wickford to talk to a conveyancing solicitor face-to-face or on the phone.