The Bank of England is considering ditching an affordability rule for mortgage lending and wants to know what impact this could have on the market. Two recommendations were introduced in 2014 to help guard against a material increase in household indebtedness that could potentially make an economic downturn worse.
These were a loan-to-income limit and the affordability test, which specifies a "stress interest rate" for lenders to consider when assessing a potential borrower's ability to repay a mortgage over time. The loan-to-income limit is likely to play a stronger role than the affordability test in guarding against the number of highly indebted households, analysis previously found.
It limits the number of mortgages that can be extended at loan-to-income ratios at or above 4.5 to 15 per cent of a lender's new mortgage lending. The Bank is seeking views on the proposal to withdraw the affordability test, in a consultation which asks how lenders and the mortgage market would respond if the recommendation were withdrawn.
