BANK OF ENGLAND DROPS MORTGAGE AFFORDABILITY TEST – WHAT THIS MEANS FOR YOU – IDEAL HOME

The Bank of England’s decision to take away the mortgage affordability test comes into effect today (Monday, August 1st). While this removes one barrier for prospective homebuyers and spells good news for the self-employed, experts argue that it will have a fairly limited impact on the majority.

Since 2014, anyone buying a property has had to pass two tests that restrict how much money they can borrow when applying for a mortgage: the loan-to-income ‘flow limit’ and the mortgage affordability test. The former, more significant test puts a cap on the number of mortgages that can be extended to 4.5 times a borrower’s salary.

Meanwhile, the affordability test involved a forensic look at buyers’ finances to assess whether they would be able to repay their mortgage if interest rates were to climb by 3%. The Financial Policy Committee introduced the tests in the aftermath of the credit crunch as a means to guard against a rise in aggregate household indebtedness that could compound an economic downturn.

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