Lenders will soon no longer be required to check whether mortgage applicants could afford payments at higher interest rates, as a change to lending rules announced last month prepares to come into effect.
On June 20, the Bank of England confirmed its intention to ditch the so-called mortgage stress test that has been in place since 2014. This means that from August 1, banks and building societies will no longer be required to assess whether a borrower could still afford their loan at the end of any short-term special offer period.
This affordability test was designed to ensure that borrowers did not assume debt they could not pay back. Its introduction was a response to the 2007-2008 financial crash which followed a period of more liberal lending practices.
Read more: What happens to debt when the unexpected happens?
However, some industry figures have long since claimed that the test is too strict on potential borrowers who would otherwise be good mortgage candidates. The Bank of England started consulting on changes to the rules in February, before announcing that this particular criteria would be scrapped in June.
A statement confirming the change said the test was introduced "to guard against a loosening in mortgage underwriting standards and a material increase in household indebtedness", both of which are considered a risk to economic stability.
However, a review by the Financial Policy Committee published in December last year confirmed that other rules were “likely to play a stronger role” in guarding against these concerns.
One such rule is what's known as the loan to income (LTI) flow limit, decides how much an applicant can borrow relative to their annual income. This limit - typically 4.5 times yearly salary - will remain once the affordability test is scrapped.
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