FCA Mortgage Stress Tests & High LTI Lending: 2025/2026 Update
Published / Last Updated on 26/04/2026
Overview
The FCA and PRA are reviewing mortgage affordability rules introduced after the 2008–2009 credit crunch.
The aim: improve access to mortgages, especially for first‑time buyers, while maintaining responsible lending.
1. Mortgage Stress Tests — Proposed FCA Changes
1.1 Background
Following the Mortgage Market Review (MMR) in 2014, lenders were required to:
- Assess affordability today and under higher future rates
- Apply a +3% stress test on 5‑year fixed rates
- Apply minimum stress margins (typically 1%)
- Ensure borrowers could still afford repayments for at least 5 years
These rules were designed to prevent a repeat of the “toxic debt” era.
1.2 FCA Proposals (2025–2026)
✔ Centralised Stress Test
Replace lender‑specific stress tests with a single FCA‑set stress model.
✔ Remove +3% Stress Test on 5‑Year Fixes
The current +3% uplift is seen as overly restrictive.
✔ Remove Minimum 1% Stress Margin
Replace with a centralised margin, giving lenders flexibility without creating market distortions.
✔ Consider Rental Payment History
The FCA proposes requiring lenders to factor in consistent rent payments as evidence of affordability.
We say: “It is crazy to think that a borrower may have been paying £1,000 pm in rent … but then gets turned down for a mortgage costing £900pm.”
1.3 Commentary
- Positive: Rental history inclusion improves fairness for first‑time buyers.
- Concern: Too much lender discretion risks a return to pre‑2008 behaviours.
High Loan‑to‑Income (LTI) Lending — Rule Changes
2.1 Background
Post‑crisis, lenders were restricted to:
- 15% of new lending per year at 4.5× income or higher
This prevented excessive high‑risk lending.
2.2 Updated PRA/FCA Approach
The cap is shifting from 15% of new lending to 15% of the lender’s total mortgage book.
Why this matters
- Large lenders with huge low‑LTI books were effectively blocked from offering meaningful high‑LTI lending.
- Small lenders could barely participate (e.g., 100 loans per year = only 15 high‑LTI loans allowed).
New flexibility
A small lender could now offer up to 15% of its entire book as high‑LTI — potentially 100+ loans.
“This will allow more lenders to offer more ‘high LTI’ loans… and may encourage smaller lenders to enter the market.”
2.3 Risks
- A surge in high‑LTI lending could recreate “toxic debt” conditions.
- Borrowers may overextend if rates rise again.
3. Market Context (2024–2026)
3.1 Post‑Pandemic Effects
- Inflation surged
- Mortgage rates rose sharply
- Many borrowers became “mortgage‑prisoners” due to strict stress tests
3.2 Regulatory Response
- Stress tests reduced to 1% over SVR
- High‑LTI caps loosened
- Suitability and affordability rules remain in place
4. Our Guidance for You
4.1 What You Should Know
- Affordability rules are easing, but lenders still assess risk.
- High‑LTI mortgages may become more available.
- Rental history may soon support mortgage applications.
- Rate volatility remains a real risk.
4.2 Our Advice Positioning
- We emphasise responsible borrowing
- We stress‑test clients beyond lender minimums
- We focus on long‑term affordability, not just initial rates
- We prepare you for potential rate rises due to global instability
5. FAQ
What is changing with FCA mortgage stress tests?
The FCA proposes removing the +3% stress test on 5‑year fixes, removing minimum 1% stress margins, and introducing a centralised stress model.
Will rental history count toward affordability?
Yes — the FCA is considering requiring lenders to factor in consistent rent payments as evidence of affordability.
What is happening to high loan‑to‑income (LTI) caps?
The cap is shifting from 15% of new lending to 15% of the total mortgage book, allowing more high‑LTI lending.
Does this mean lending will become riskier?
Potentially. More flexibility could increase lending volumes, but also risk a return to high‑risk borrowing if not managed carefully.
Are affordability checks being removed?
No. Suitability and affordability assessments remain mandatory.
