The ‘stress test’ has been scrapped
The Bank of England has eased mortgage borrowing rules by getting rid of an affordability test.
Previously, lenders had to use the “stress test” to calculate whether potential borrowers would be able to keep up with mortgage payments if interest rates climbed by 3 percent.
By scrapping this affordability test, it may now become easier for potential borrowers to get loans.
The withdrawal of the “stress test” was announced in June, but came into effect on Monday (August 1).
It had been introduced in 2014 as part of measures to prevent future mortgage mis-selling, something which contributed to the 2008 financial crisis.
The idea behind the test was that borrowers would not be able to take on debt they may not be able to pay in the future if interest rates went up.
This meant that borrowers who may have easily been able to afford mortgages at existing interest rates may still have been turned down for mortgages because lenders feared they would not cope if rates soared.
And some potential first-time buyers may have failed affordability assessments despite paying rent far higher than mortgage payments would be.
There are still restrictions and requirements in place for borrowers though, such as the loan-to-income framework, which stops people borrowing more than 4.5 times their income.
This means that, for most, the removal of the “stress test” will not make it easier to get a mortgage.
And in the short term, it is unlikely many lenders will change the way they assess loans. But it does mean that in the future they will be able to set their own rules.
Mark Yallop, chairman of the Financial Markets Standards Board, told the BBC that although the change would make it “slightly easier” for some borrowers to get a mortgage, the biggest difficulty for new mortgages is “the ability of borrowers to afford a deposit.”
Related links:
- Tesco in Liverpool stops prosecuting shoplifters – and redirects them to food banks instead
- Every UK household to get energy bill discounts of £400 this autumn
- Couple live on cruise ships full time because it’s cheaper than paying a mortgage
