Bank of England scraps mortgage affordability test

Prospective home-owners may find it easier to get onto the property ladder after the Bank of England scrapped its mortgage affordability test.

Previously, lenders would use the ‘stress test’ to calculate whether customers hoping to borrow money would be able to cope with their repayments if interest rates climbed by up to 3%.

The test was introduced in 2014 after the 2007-08 financial crisis as part of a package of measures designed to prevent a repeat of the reckless lending seen in the run-up to the crash.

But now, the stress test is no more, with lenders no longer being required to use it as of this week (August 1st).

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This is good news for hopeful buyers, with the Bank of England having previously indicated that about 6% of mortgage borrowers – approximately 35,000 people – would have been able to secure a bigger home loan if the stress test had not been in place.

The withdrawal of the test could also help those who have been refused mortgages despite keeping up rental payments for higher amounts.

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However, the bank has said the change should not be viewed as ‘a relaxation of the rules’, with the rule that limits most new mortgage lending to a maximum of 4.5 times a borrower’s income staying in place.

The Bank said this rule ‘ought to deliver the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way’.

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Claire Flynn, a mortgages expert at the comparison website Money.co.uk, said given the cost of living crisis, the removal of the affordability test was likely to be viewed by many as good news.

She told the Guardian: “That’s because it could allow more people to get on the ladder as they can take out larger mortgages.

“However, borrowers will still need to meet the loan-to-income ratio, which could still prevent some from getting the mortgage they require to buy a home.

“There is also a risk that with fewer restrictions, some buyers will take out loans that they are unable to afford.”