Bank of England’s looser mortgage lending rules

Mortgage affordability tests introduced after the financial crisis are being ditched by the Bank of England.

The guidelines were issued by the Bank in 2014 to help tighten the mortgage market after the loose selling of home loans contributed to the financial crash six years earlier.

But after consulting with industry bodies, the Bank’s Financial Policy Committee has decided the existing loan to income (LTI) ratio limits will be enough to prevent large numbers of borrowers defaulting on their mortgages.

So, from 1 August lenders will not be expected to apply the affordability test or ‘stress interest rate’ (if rates rise) when assessing potential mortgages, only using the Financial Conduct Authority’s more general Mortgage Conduct of Business.

In statement the FPC said the new guidelines “ought to deliver the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way”.