Mortgage Affordability Test Has Been Scrapped By The Bank Of England

Residents looking to get on the property ladder may now be one step closer as the Bank of England has scrapped a mortgage affordability test.

The withdrawal of the test came into effect today (1 August) after the bank initially announced plans to remove it in June.

Previously lenders would be able to use the test to calculate whether customers hoping to borrow money would be able to cope with their repayments if interest rates climbed by up to 3 percent.

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One such test is described by Barclays Bank as 'a test that hundreds of thousands of would-be home buyers have to take every year', adding: "Pass and you’re a big step closer to buying a home; fall short and you could end up having to think again."

Those who took the test were forced to look at how they might cope if they experienced a setback in their finances, for example losing their job, but it could potentially make it more difficult for self-employed or freelance workers to get loans.

"Think of it as a forensic look at all your personal finances, to check for proof you can afford the home loan you want," Barclays says.

The withdrawal of the test may help some potential borrowers get loans, including those who have been refused mortgages despite keeping up rental payments for higher amounts.

Mark Harris, chief executive of mortgage broker SPF Private Clients, previously described the removal of the test as 'good news, particularly for first-time buyers who should be able to borrow more'.

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However, there are other rules such as strict loan-to-income limits that could still stand in the way of people getting a mortgage.

Harris explained: "Scrapping the affordability test is not as reckless as it may sound. The loan-to-income framework remains so there will still be some restrictions in place; it is not turning into a free-for-all on the lending front.

"Lenders will also still use some form of testing but to their own choosing according to their risk appetite."

The test was first introduced in 2014 in a bid to tighten up the mortgage market in the wake of the 2008 financial crisis, which came in part after lenders offered mortgages at more than 100 percent of a property's price, often without asking for proof of income. Bringing in the test therefore aimed to ensure borrowers would be able to repay their loans and would not threaten the financial stability of lenders.