Will The Scrapping Of The Mortgage Affordability Test Help You?

August 11, 2022

The Bank of England has now scrapped a key element of the mortgage affordability test from 1 August 2022. The affordability test was first introduced in 2014 as a stress test of income, so that lenders could identify whether mortgage applicants could withstand an arbitrary 3% rise in interest rates.

After the financial crash of 2007-8, which was largely blamed on the sub-prime mortgage market, mortgage underwriting standards were made tougher. The affordability test was a consequence of this, to safeguard against householders taking on unaffordable debts.

Given that the Bank of England has recently put up interest rates for the fifth time in a row, (currently 1.25%), some commentators expressed surprise at the move. However, there are still rules in place which limit most mortgages to a maximum of 4.5 times the borrower’s annual income.

The change in rules may work in the favour of people who have a good credit record, but have been unfairly penalised because they have a below average income. They may have been rejected for a mortgage even though the monthly repayment rates would have been much lower than the amount they are currently paying in rent.

People who have a low income, and those who need a bigger mortgage than they can currently afford on their salary, may now be eligible, whereas they would have been previously rejected because of the 3% interest rate rule.

Anyone who thinks this might apply to them is advised to budget carefully, because lenders will still assess all your income and outgoings on a case-by-case basis. Cutting down on non-essential expenses, and making sure you meet all bill and loan repayments on time, will help to put a first-time buyer in a stronger position.

If you are looking for IVA mortgage specialists, please get in touch today.

Your home may be repossessed if you do not keep up with your mortgage repayments.

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