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Bank of England’s looser mortgage lending rules ‘not reckless… but baffling’

Mortgage experts cautiously welcome announcement but warn that many borrowers remember how 2008 global crash was caused by 'free for all' rules.

David Callaghan


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”.

Industry reaction

gemma harle mortgageGemma Harle, managing director at Quilter Financial Planning (pictured), says: “The timing of today’s announcement that the Bank of England is going to loosen its affordability rules is somewhat baffling and may enrage some who still have the financial crash burned into their memory.

“With interest rates starting to creep up to meet the damaging impact of inflation and soaring energy and food prices you would think that people’s ability to afford their mortgage should really be under the spotlight now.

“However, this move by the Bank of England may illustrate that the long-term health of the housing market is predicted to be less than rosy, and this change is a means to guard against a real slump in house prices.

“Although the shift in rules is one of the many attempts to help first-time buyers get their foot on the ladder it may end up having the opposite effect.”

Mark Harris mortgage

Mark Harris, chief executive of mortgage broker SPF Private Clients (pictured): “Scrapping of 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.

“It could have a positive affect on certain borrowers who have been disadvantaged when it comes to getting on the property ladder. For example, first-time buyers who have been affording rents far in excess of actual mortgage payments but have failed affordability assessments regardless.

“The rate environment and expectations have changed significantly since the rules were introduced when borrowers were tested to ensure that mortgage repayments could be met should rates be in the region of 6 to 7 per cent.”

Read the official announcement.

June 20, 2022

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