Andrew Bailey Provident Lowe's Citizens Andrew Bailey

Interest rates are rising – so why are mortgage rules being scrapped?

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From today, there is one less barrier to obtaining a mortgage. The path to high value property loans has opened to a much wider audience after the Bank of England killed off a regulation demanding borrowers show they can cope with a three-percentage-point rise in interest rates.In a move planned last year and implemented on 1 August, the financial policy committee of the central bank said it was scrapping the rule because forcing borrowers to stay within a limit of 4.5 times earnings when they apply for a loan was enough.Until now, borrowers needed to satisfy the earnings test and also show they could cope with a significant increase in monthly borrowing costs.During a short consultation period, the Bank’s governor, Andrew Bailey, said scrapping the affordability requirement should not be regarded as a relaxation of lending standards.

Instead, those that worry about excessive borrowing, especially by people on modest incomes, should consider an overall framework that still includes many other checks.Bailey said he was convinced lenders could be “more efficient” without sacrificing safety. “Having now got a body of evidence running back seven years or so now, we were able to take a much more substantial judgment on the effectiveness of the tests,” he said.The backdrop to the decision is a sharply slowing housing market that ministers are concerned will rob the economy of vital thrust if it weakens further.

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