Mortgage market faces “evolution, not revolution” as BoE eases capital rules

The Bank of England’s latest stress-test results have offered a cautiously positive signal for the mortgage market, with all major lenders judged able to withstand a severe downturn. Regulators have responded by easing capital requirements for the first time since before the financial crisis, a shift that could create more room for pricing competition and selective criteria improvements over the coming year. 

The BoE confirmed that the UK’s largest lenders would remain above minimum capital thresholds even under a scenario involving falling house prices, higher unemployment and sharply rising interest rates. On that basis, the benchmark tier one capital expectation has been reduced from 14% to 13%, a move intended to give banks “greater certainty and confidence” in continuing to lend during economic stress. 

Brokers: welcome news, but no turning point yet 

For brokers, the change is encouraging but far from transformative. Sam Fox of UK Mortgage Centre said the adjustment “will be good for borrowers and for lenders but I’m not expecting the world to be set alight.” 

He expects lenders to respond in measured steps rather than with sweeping policy changes. “The immediate impact is most likely to show up in sharper pricing, subtle criteria improvements and a bit more confidence around lending in the 75 to 90% LTV range.” 

Fox added that some lenders may look at stretching income multiples or revisiting withdrawn niches, but that wider economic pressures still hold back risk appetite. 

“This feels more like evolution than revolution,” he said, noting concerns around arrears rising from historic lows, political uncertainty and the ongoing affordability conversation with borrowers. “Lenders will support good-quality cases and compete where it makes sense, but they’ll maintain a cautious tone around higher LTVs, credit-impaired clients and marginal affordability.” 

Guy Nyirenda of Altura Finance also welcomed the findings, noting that “UK banks are well capitalised and could manage through modelled financial challenges,” adding that “no UK bank was required to strengthen its capital position as a result of the test.”

Global market risks keep caution firmly in play 

Graham Taylor of Hudson Rose said the stress-test results were “undoubtedly good news… especially for shareholders,” but he warned that broader financial-market risks could still temper how far lenders are willing to go. 

“There is still caution of a potential shock to markets if the ever growing AI stocks burst. The knock on effect of this could mean that banks require the reserves they have built up,” he said. 

Taylor’s warning reflects a growing concern that any correction in highly valued tech and AI equities could prompt lenders to preserve capital rather than expand their risk appetite. While improved buffers offer room for competition, advisers say boardroom sentiment remains sensitive to volatility, and that will continue to influence product strategy and pricing into 2026. 

What brokers should expect into 2026 

The consensus among advisers is that any meaningful benefits will emerge gradually: 

• Pricing: modest cuts rather than major repricing rounds. 
• Criteria: targeted improvements, especially for lower-risk profiles. 
• High LTVs: still tightly controlled despite slightly more comfort. 
• Borrower sentiment: affordability headwinds and volatility continue to dominate. 
• Lender strategy: quality over quantity in case selection. 

A constructive shift, but with limits 

While the BoE’s easing marks a symbolic turning point in post-crisis regulation, brokers say the mortgage market should still prepare for incremental, not sweeping, change. Capital headroom is improving, but the appetite to deploy it is likely to depend on how economic and market risks evolve over the next year. 

For now, lenders may become marginally more competitive, but the caution that has defined the past two years is far from disappearing.