Removal of mortgage stress test ‘will not result in free-for-all’

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First-time buyers may get a boost from this week’s announcement that the Bank of England will no longer expect lenders to check if they can afford mortgage payments at higher interest rates – but experts do not expect it to lead to a mortgage free-for-all.From 1 August, banks and building societies will no longer be required to stress-test a borrowers’ finances with the mortgage market affordability test when working out how much to lend.The test meant checking that a borrower could still afford their loan at the end of any short-term special offer period in the event of rising interest rates.

Lenders worked this out using the “revert to” rate – the standard variable rate or tracker rate that borrowers would move on to, plus three percentage points.As an example, a borrower taking out a two-year fixed-rate mortgage at 2.2% with a revert to rate of 4% would need to show they could afford the monthly repayments on a rate of 7%.The rules were introduced in the aftermath of the 2007-2008 financial crash, which followed years of unrestrained lending.

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