The affordability test, which was introduced in 2014, detailed that borrowers had to prove that they could still afford to make their mortgage repayments even if their mortgage rate was increased above their standard average rate of 3%.
This allowed for the avoidance of the risk of financial instability as borrowers could not take on more debt than they could afford.
However, The Bank of England removed the affordability test on 1st August 2022, meaning lenders will no longer have to check that homeowners can afford their mortgage payments at higher interest rates.
Why Has The Test Been Removed?
The decision to remove the test came after the Bank of England decided that other rules were ‘likely to play a stronger role’ in the attempt to prevent an increase in household debt.
The central bank suggested that the other rules ‘ought to deliver the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more appropriate way’.
Does This Affect People’s Ability To Borrow?
It has even been suggested that the change to the rule for buyers could actually be a positive thing, especially for borrowers who had found themselves lacking on other affordability tests when taking the cost of living into consideration.
It’s been a difficult few years for the housing market, not helped by the impact of Covid19, lockdowns and furlough, and many people across the UK are still only just getting back onto their feet, financially.
Our new Prime Minister, Liz Truss, has spoken about plans to make mortgage advisers take into account applicants’ rent payments when deciding how much they can borrow. This should improve the ability of many first-time buyers to get onto the housing ladder.
Get In Touch
If you are in need of some help with any property legal matters you may be facing then get in touch with Bowsers, a trusted solicitor with commercial lawyers who are experienced in their field. Call our legal experts today at 01945 583194.
Image Source: Pexels