Buying a home is stressful, and there’s a lot of steps involved with the purchasing process, but there is sure to be a lot of debate and discussion over the Bank of England scrapping the affordability or “stress test” associated with arranging a mortgage.
The test required mortgage lenders to determine if applicants could afford to take out a mortgage rate if interest rates reached 3%. While the withdrawal of the affordability test was stated in June of this year, it is now in effect in August.
It is believed that some applicants will benefit from this change, such as freelance employees and self-employed professionals. However, there are still factors such as loan-to-income limits that will prevent some applicants from receiving a mortgage.
Many experts have spoken out about these changes
Mark Harris is the chief executive of mortgage broker SPF Private Clients, and he is quoted by the BBC as saying; “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 rule change could have a positive effect on borrowers who have been disadvantaged when it comes to getting on the property ladder.”
Things might not change too much
This suggests there might be too many changes to the actual mortgage application process for many users. Mortgage lenders will still make commercial decisions, and if they deem an applicant to be too much of a risk, they will likely not award the mortgage.
The feeling that not much will change is shared by Mark Yallop, who is the chairman of the Financial Markets Standards Board, who said; “The biggest constraint on new mortgages is the ability of borrowers to afford a deposit” and while he believes this new approach will make it “slightly easier” for some prospective buyers to arrange a mortgage, there won’t be a massive impact on the market.
Paul Johnson is the head of mortgages at St. James’s Place, and he said: “It is unlikely to have a big impact on lenders affordability calculations with the increase in utility bills being factored in. A bigger impact would have been seen if the FCA had changed the LTI rule which limits the number of mortgages that can be extended to borrowers at LTI ratios at or greater than 4.5.”
Gemma Harle is the managing director at Quilter Financial Planning, and she said; “The change in the affordability rules may not be as significant as it sounds as the loan-to-income 'flow limit' will not be withdrawn, which has much greater impact on people's ability to borrow.”
No matter the changes in the mortgage market, if you are looking for guidance or support in the Darlington or Wynyard housing markets, we are here for you, so please contact us today.
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