Hopeful buyers looking to get on the property ladder may now by able to advance quicker than before as the Bank of England has abandoned the mortgage affordability test.
The withdrawal of the test came into effect from 1st August 2022 after the bank initially announced plans to remove it in June.
Previously lenders would be able to use the test to calculate whether customers hoping to borrow money would be able to cope with their repayments if interest rates climbed by up to 3%.
The withdrawal of this test has the potential to help some borrowers get loans, including those who have been refused mortgages in the past despite keeping up rental payments for higher amounts.
The test, also known as the ‘stress test’, was first introduced in 2014, after the 2007-2008 financial crisis, and was part of a package of measures designed to prevent a repeat of the reckless lending that was noted in the run up to the crash. Lenders before the test were able to offer mortgages at more than 100 per cent of a property’s price, often without asking for proof of income. Introducing the test therefore aimed to ensure borrowers would be able to pay their loans and would not threaten the financial stability of lenders.
The Bank has previously indicated that about 6% of mortgage borrowers – approximately 35,000 people – would have been able to secure a bigger home loan if the interest rate test had not been in place.
Gary Dobson, senior mortgage & protection manager at commercial and residential specialists, Bradley Hall said: “The removal of the mortgage affordability test will create a new opportunity for first-time buyers who should be able to borrow more with this test being lifted. It will also create an opening for those wishing to secure a larger home loan due to the removal of this test.
“Removing the affordability test is not as reckless as it may initially be perceived. The loan-to-income framework remains in place so there still be some restrictions in place to limit the lending marketing becoming a free-for-all. “Lenders will still be required to use some form of testing but to their own choosing according to their appetite for risk.”