BoE drops mortgage market affordability test


The Bank of England has confirmed that it will withdraw its mortgage market affordability test from August.

The Financial Policy Committee, part of the BoE, introduced the test in 2014 which specifies a stress interest rate for lenders when assessing the ability of potential borrowers to repay a mortgage.

The objective was to “protect against a relaxation of mortgage underwriting standards and a significant increase in household indebtedness which could in turn amplify an economic slowdown and thus increase risks to financial stability”.

However, in a statement today, the BoE said the Loan to Income (LTI) ‘flow limit’ affordability measure, which limits the number of mortgages to 4.5 times salary or that larger borrowers can withdraw, was “likely to play a stronger role”. role of the affordability test in guarding against an increase in overall household indebtedness and in the number of highly indebted households in a scenario of rapidly rising house prices”.

“The LTI flow limit without the affordability test, but alongside the broader affordability assessment required by the FCA’s Responsible Mortgage Business Conduct (MCOB) lending rules, should provide the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and proportionate way,” the BoE statement read.

The FPC consulted in late February on the proposal to remove the affordability test and maintain the LTI stream limit, with the majority of responses supporting the proposals.

It says no action is required from lenders following the announcement, as current affordability assessments should already be in line with the FCA’s mortgage business conduct framework.

Previous Second Charge Watch: who's ready for seconds?
Next StrideUp Launches FTB Condominium Mortgage Product