Bank of England to Withdraw Mortgage Affordability Test

The Bank of England’s Financial Policy Committee (FPC) has issued a consultation paper in connection with the withdrawal of mortgage affordability tests for mortgage lenders and mortgage brokers when considering new mortgage applications.

The FPC has issued two major recommendations to make lending and mortgage underwriting simpler:

• Extending loan to income limits on lending for higher loan to value mortgages to 4.5 X income without lenders being required to manage/restrict the flow/amount of lending in that area
• Withdrawing the need for stress testing mortgage payment affordability at 3% over the lender’s standard variable rate.  The FPC believes that Financial Conduct Authority (FCA) rules on affordability combined with FPC higher LTI flow limits will continue to manage this without the need for a formal stress test.

Conclusion

This is a welcome move, although we welcome it with caution.  The current FCA Mortgage Conduct of Business Sourcebook (COBS) already has rules in place that lenders and brokers are required to comply with, these already complement the Bank of England’s requirement to have a stable yet flourishing property market. 

In addition, higher risk lending is now more a thing of the past.  The biggest obstacle is new borrowers trying to save for a deposit rather than the ability to meet mortgage payments given their rents are probably higher than likely mortgage payments, with the exception perhaps of the South-East.

That said, we can see this changing with a sustained period of higher inflation and subsequent interest rate increases.

Contact  Call Back  Mortgage Afford  Our Fees