Bank of England To Consider Withdrawing Affordability Test For Mortgages

The Bank of England has announced it is to consider easing mortgage lending rules in a move that could potentially help thousands of first-time buyers get on the property ladder.

Mortgage Solutions reports that the Bank of England will consult with the industry in the first half of 2022 on withdrawing its affordability test requirement, allowing borrowers to be able to afford their mortgage if their interest rate is three per cent higher than their reversion rate.

This will benefit around 50,000 people in the UK, or around one per cent of renters, who are unable to meet the affordability test, and a further six per cent of mortgage borrowers, or around 35,000 people, would also have been able to secure a larger loan if the rule had not been in place.

The Bank of England said that a rule limiting some new lending to 4.5 times a borrower’s income, as well as separate affordability criteria set by the Financial Conduct Authority, were sufficient to guard against excessive risks in the mortgage market.

Governor of the Bank of England, Andrew Bailey said that scrapping the affordability requirement is not a relaxing of lending standards, as the rule that limits some new mortgages to 4.5 times a borrowers’ income was the main constrain for riskier lending.

“We don’t regard it as a relaxation of the rules, rather as an efficiency point, because 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.

He added that the UK financial system was well equipped to deal with a potential fresh economic downturn caused by the emergence of the coronavirus Omicron variant, saying that he does not believe that the UK is in a situation where there is stress around the corner in terms of markets.

He noted that global financial markets had moved as a result of the Omicron variant but had not come close to similar stress levels as seen in early 2020 when the pandemic first spread.

“I don’t think it’s going to be a big stress event,” he said.

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