Bank of England scraps mortgage affordability test

theguardian.com:

Thousands of potential homebuyers may find it easier to get on to the property ladder after a key mortgage affordability test was scrapped by the Bank of England.

The central bank has said the change – taking effect from 1 August – should not be viewed as “a relaxation of the rules”. However, some commentators said that while the move would be welcomed by many, there was a risk that some people would take out mortgages they were unable to afford.

The Bank has removed a requirement that forced borrowers to be able to afford a three-percentage-point rise in interest rates before they could be approved for a home loan.

This “stress test” was introduced in 2014, after the 2007-08 financial crisis, and was part of a package of measures designed to prevent a repeat of the reckless lending that some say was rife in the run-up to the crash.

The Bank has said another rule that is staying in place – which limits most new mortgage lending to a maximum of 4.5 times a borrower’s income – as well as separate affordability criteria set by the Financial Conduct Authority, “ought to deliver the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way”.

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 stress test had not been in place.

Claire Flynn, a mortgages expert at the comparison websiteMoney.co.uk, said given the cost of living crisis, the removal of the affordability test was likely to be viewed by many as good news.

She added: “That’s because it could allow more people to get on the ladder as they can take out larger mortgages. However, borrowers will