In breaking news, The Bank of England has announced that it will axe a key mortgage affordability guideline designed to prevent people from financially overstretching.
The central bank’s Financial Policy Committee has confirmed that from 1 August 2022 lenders are no longer required to test borrowers’ finances against their high standard variable rates plus 3 per cent.
In simplified terms, the stress test (introduced in 2014) meant borrowers had to prove they could afford their mortgage repayments if their mortgage rate was to increase to 3 per cent above their lender’s standard variable rate.
Based on today’s rates, the removal of the affordability stress test means that a typical borrower will no longer be assessed on whether they could hypothetically afford an interest rate of 3 percentage points above the highest rate of 4.91 per cent.
What does this mean for Property Buyers?
The removal of the affordability stress test is likely to support first-time buyers who may have been disadvantaged in the past.
For example, first-time buyers who have been affording rents far in excess of actual mortgage payments but have failed affordability assessments regardless.’
What can we expect from Lenders?
the loan-to-income framework remains, so there will still be restrictions in place. At present, the regulatory requirement is that lenders only offer a certain number of loans over 4.5 times annual income.
However, we do expect to see some innovation from lenders who may relax or manipulate their current testing in accordance with their own risk appetite.
Rising interest rates
This regulatory change follows The Bank of England raising interest rates for the fifth consecutive time in a bid to tackle soaring inflation.
On June 16, members of the Bank’s monetary policy committee voted to increase the base rate by 0.25%, taking it to 1.25% – a rise that will affect more than 850,000 homeowners almost immediately.
Take Action – Review your mortgage
We are encouraging our clients to review their mortgages and plan for the year ahead.
If you are on a tracker or have a remortgage coming up in the next six months please get in touch with our experienced mortgage brokers.
Rates are likely to increase again, we can help secure a competitive, long-term interest rate for your property now.
Our mortgage experts are at hand to help you with all of your mortgage needs. To speak to a member of our team please call 020 3645 4322 or get in touch via our website.