An affordability test for mortgage lending will be ditched from August, the Bank of England has confirmed. The Bank has previously consulted on the potential impacts that withdrawing the affordability recommendation could have on mortgage lending, and it confirmed on Monday that the withdrawal will happen from August 1.
Two mortgage recommendations were introduced in 2014, to help guard against a significant increase in household indebtedness that may make any economic downturn worse. These were a loan-to-income (LTI) limit and the affordability test, which specifies a “stress interest rate” for lenders to consider when assessing a potential borrower’s ability to repay a mortgage over time.
The LTI limit, which will remain in place, limits the number of mortgages that can be extended to borrowers at LTI ratios at or greater than 4.5. According to data from Rightmove released on Monday, the average asking price across Britain stands at £368,614 – with June marking the fifth month in a row that it has hit a record high.
Gemma Harle, managing director at Quilter Financial Planning, said: “While it is potentially bad timing for the announcement, the change in the affordability rules may not be as significant as it sounds as the loan-to-income (LTI) ‘flow limit’ will not be withdrawn, which has much greater impact on people’s ability to borrow.
“Although the shift in rules is one of the many attempts to help first-time buyers get their foot on the ladder, it…
