Homeowners forced to prove they can afford 8pc mortgage rates

Borrowers with TSB must prove they can afford mortgage rates of up to 8pc after the high street lender tightened its stress testing ahead of further interest rate rises.

The bank has raised its affordability test rate for new home movers from 7pc to 8pc, while first-time buyers must now prove they could still afford their mortgage if rates rose to 7pc, up from a previous test of 6pc.

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.

Until this year lenders were required to stress test borrowers against a rate 3 percentage points higher than their standard variable rate, but the Bank of England scrapped this rule in August.

However, under separate rules from the Financial Conduct Authority, the City watchdog, banks must still stress test at SVR plus at least 1 percentage point. Lenders must also take into account expected rises in the Bank Rate, which is forecast to surpass 5pc next year. Bank Rate is currently 2.25pc.

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.”

Santander and Barclays declined to share their stress rates when asked by Telegraph Money, with Barclays stating “the methodology is commercially sensitive”. NatWest, Halifax and Lloyds did not respond to requests for details of their stress tests.