Despite rising interest rates, the Bank of England’s Financial Policy Committee has confirmed changes to the mortgage requirements. As a result, the affordability test recommendation will be removed from Banks’ requirements.
Initially, the mortgage requirement was introduced in 2014 to protect lenders and borrowers and contained two main recommendations. In the beginning, they introduced the ‘interest rate stress test’ which is used by lenders. This was to assess prospective borrowers’ ability to meet mortgage repayments.
Next, the recommendation was the loan to income ‘flow limit’. This was to limit the number of mortgages that could be given to borrowers at or great than 4.5 times their annual income. However, this recommendation will not be withdrawn.
Mortgage requirements – results
Consequently, the announcement means that lenders will no longer have to check whether borrowers could afford mortgage repayments at a higher interest rate than the one they are initially offered.
Therefore, the removal of the interest rate stress test will come into effect from 1st August 2022 but will not apply to buy-to-let mortgages and therefore landlords will still be subject to the interest rate stress test.
In addition, another development that may benefit buyers has been introduced by Halifax, which is now offering 95% mortgages on new build properties. This includes shared ownership properties which allow buyers to purchase a share of the property which can be increased in the future.
If you are looking to get on to the property ladder check our recent reviews from first-time buyers and request a quote online.