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Mortgage rules eased as Bank of England scraps affordability test

·2-min read
Another rule, which is still in place, limits most new mortgages to a maximum of 4.5 times a borrower’s income (PA)
Another rule, which is still in place, limits most new mortgages to a maximum of 4.5 times a borrower’s income (PA)

Mortgage borrowing rules have been eased by the Bank of England making it easier for thousands of potential homebuyers to get on the property ladder.

The affordability “stress” test forced lenders to assess whether people applying for a mortgage would be able to cope if interest rates rose to 3 percent.

The Bank of England said that the change should not be seen as a “relaxation of the rules”, adding that a number of other measures still in place “ought to deliver the appropriate level of resilence to the UK financial system, but in a simpler, more predictable and more proportionate way.”

The test was introduced in 2014 following the 2008 financial crash and was designed to stop reckless lending to people who could not afford it.

Another rule, which is still in place, limits most new mortgages to a maximum of 4.5 times a borrower’s income. The Bank of England’s financial policy committee said in 2021, after a review of the rules, that this other limit “is likely to play a stronger role than the affordability test in guarding against an increase in aggregate household indebtedness and the number of highly indebted households in a scenario of rapidly rising house prices.”

There is also another affordability criteria put in place by the Financial Conduct Authority.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Scrapping the affordability test is not as reckless as it may sound. The loan-to-income framework remains so there will still be some restrictions in place; it is not turning into a free-for-all on the lending front.

“Lender will also still use some form of testing but to their own choosing according to their risk appetite.”

However Myron Jobson, a senior personal finance analyst at Interactive Investor, said that undoing the measure “could run the risk of people biting off more than they [can] chew financially to purchase a property.”

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