Mortgage affordability tests

The Bank of England has now relaxed its mortgage affordability tests, removing the stress testing introduced by the Financial Policy Committee (FPC) in 2014. 

Let's take a look at what this really means for home buyers now.

How has the mortgage affordability stress test changed?

The Bank of England has now removed the affordability stress test requirements for lenders. Caps on high loan to income lending will now take their place, along with other rules and guidance promoting 'Responsible Lending'. Mortgage lenders will now have to test that individual borrowers can afford their contracted mortgage payments during the first five years of their mortgage, steered by certain considerations - where financial markets expect interest rates to move over that period; or rates one per cent higher than today (if higher).

Essentially each lender will still assess mortgage applications on a case-by-case basis. Many have already taken higher bills into account recently, as well as increased national insurance rates. 

In theory that opens up the capacity for home buyers to borrow more, but it remains unclear to what extent. It would seem this depends in large part on how lenders apply the Responsible Lending Rules. Also, and importantly, the future relationship between their Standard Variable Rate and other interest rates available in the wider mortgage market. The news has been met with positivity by both lenders and consumer groups, and buyers who are increasingly squeezed by raising property prices. 

What will relaxing stress tests do to the housing market?

Relaxing mortgage stress tests are unlikely to open the mortgage-credit floodgates. It will let lenders be a bit more flexible and could provide some relief to first-time buyers struggling with affordability. But saving for a deposit is still likely to remain the most significant barrier to homeownership.

Of course, we're here to help with these big decisions, our mortgage advisors are independent meaning they can look a the whole of the mortgage market for you, and their service is completely free. If you need some help & support arranging a mortgage and would like to book a consultation in person, on the phone or online click here

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