Bank of England scraps Mortgage affordability test also known as the Mortgage Stress Test Scrapped
Thousands of home buyers are potentially going to find it easier to obtain a mortgage from August 2022 as the Bank of England has scrapped the requirement of buyers to pass an affordability test. This move will allow many homebuyers to find getting onto the property ladder moving forward easier.
When it comes to freelancers and self employed, this move should in effect help them obtain mortgages from lenders. This move is not, as stated by the Central Bank, as a relaxation of the rules. Moving forward from the 1st of August 2022, new applications must be able to demonstrate that they would be able to cope with an increase rates should they to rise by 3%.
The original affordability test, also known as the ‘stress test’ was introduced after the financial crisis of 2007 – 2008 to counter act the reckless lending by some mortgage lenders that was attributed to the build-up of the crash. By introducing this test, it placed mortgage lenders to be more accountable to ethical lending and avoid the risky loans for home buyers that effected the stability of the financial markets.
One rule that is still in place by Bank of England is that the majority of new borrowing should stay within 4-5 times ‘the borrowers’ income in conjunctions with the guidelines and affordability criteria by the Financial Conduct Authority. The combination of this should deliver the level of resilience required for borrowing in the UK Financial System. As stated by the Bank of England, ‘these measures will bring resilience, but in a simpler, more predictable and more appropriate way.
6% of mortgage borrowers, claims the Bank, would have been able to secure larger home loans had the affordability test not been in place. In figures, this amounts to 36,000 individuals. With rising costs of living, this is viewed by many lenders and mortgage commentators as a very positive step to the market. This will allow many more home buyers get onto the property ladder and with larger mortgages. Borrowers must be able to demonstrate that they are able to accommodate the loan to income ratio value to ensure that they are able to secure the mortgage loan for their new home.
With property values continue to rise sharply, Barclays and The Halifax are amongst the lenders that are able to go to 5.5 times the loan to value ratio for high earning borrowers. Habito, is in some cases prepared to go up to 7 times the loan to value for some borrowers.
This is great news for the removals industry especially at a time when the fuel and energy costs combined with the food cost crisis. By making it easier for borrowers to get onto the property ladder and others already borrowing secure larger mortgages it should help keep the sector continue to move home owners across all areas of the property market.
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