The mortgage market affordability test

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First-time buyers may get a boost from the recent announcement that the Bank of England will no loner expect lenders to check if they can afford mortgage payments at higher interest rates – but experts do not expect it to lead to a mortgage free-for-all.

From 1 August, banks and building societies will no longer be required to stress-test a borrowers’ finances with the mortgage market affordability test when working out how much to lend.

The test meant checking that a borrower could still afford their loan at the end of any short-term special offer period in the event of rising interest rates. Lenders worked this out using the “revert to” rate – the standard variable rate or tracker rate that borrowers would move on to, plus three percentage points.


As an example, a borrower taking out a two-year fixed-rate mortgage at 2.2% with a revert to rate of 4% would need to show they could afford the monthly repayments on a rate of 7%.

The rules were introduced in the aftermath of the 2007-2008 financial crash, which followed years of unrestrained lending. In the early 2000s, mortgages were available at more than 100% of a property’s price, could be taken out easily on an interest-only basis and were often granted without any proof of income.

Scrapping the test may help would-be buyers who have been refused mortgages that have lower repayments than the sum they pay in rent each month. A consultation by the Bank found that in order to qualify for home loans people were taking mortgages over longer terms, or on longer-term fixed-rates, which meant paying more overall.

To find out more about your eligibility for a mortgage contact Asset Harbour on 01276 986333 today.