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Mortgage Affordability Rules Scrapped by the Bank of England

Published: 23 June 2022
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Author: Carl Shave - CEO and co-founder
Last updated: 26May2024

The Bank of England have announced that they are to remove their mortgage affordability testing rules from August of this year.  Following their initial consultation of the changes in February, it has been decided that due to other rules that are already in place for lenders to assess an individual’s ability to afford the loan amount requested, that these are likely to play a stronger role in the process.

What was the mortgage affordability rule?

Following the financial crash, new rules were implemented in 2014 to ensure customers were protected against borrowing in excess of what was deemed affordable.  Lenders were given rules to apply to their lending criteria called as a stress test.  This involved calculating the mortgage payment using a higher rate and thus ensuring affordability could be maintained even if interest rates increased.

Does this mean I can now borrow more?

Whilst the removal of this rule could cause alarm for some and appear baffling when we are in the midst of rising interest rates and increasing inflation, lenders still have a duty of care and must retain an attitude of responsible lending  caps to the overall lending limits will still apply where income multiples remain, so whilst the removal of the affordability rule will provide some flexibility for lenders in their decision process it will not simply pave the way for customers to borrow vast sums above that which they may be able to now.

Affordability will still apply when lenders make their assessments and what we have perhaps always regarded as the way the maximum loans are calculated, being income multiples or loan to income (LTI), will still apply. Indeed, it is this rule that the Bank of England feels will provide a much stronger role in the assessment of mortgages in a rising interest rate market.  As such, simply due to the stress testing rule being removed it will not necessarily mean you will now be able to borrow any more than you did whilst it was in place.

What does the future hold?

This move by the Bank of England is hopefully to be seen as a positive move.  It will likely see innovative thinking by lenders who in turn will be able to apply positive changes for those that need it most and provide a much more individual approach to lending decisions based on the applicants own personal circumstances.  The one size fits all approach can start to be put behind us and see the mortgage market change to the benefit of its customers including those mortgage prisoners who have found themselves stuck on higher interest rates.

Try our Mortgage Affordability Calculator today.