Lenders will no longer have to apply an affordability assessment to their mortgage customers

chanz4

Lenders will no longer have to apply an affordability assessment to their mortgage customers from August 2022 following an announcement from the Bank of England to remove this rule. 

ACG @K_S
 
in real terms what does this mean, does it mean no long interviews going through spending with tooth combs?

chanz4

@kingstreet

K_S

chanz4 said:

Lenders will no longer have to apply an affordability assessment to their mortgage customers from August 2022 following an announcement from the Bank of England to remove this rule. 

ACG @K_S
 
in real terms what does this mean, does it mean no long interviews going through spending with tooth combs?

@chanz4 Are you talking about the BOE dropping the stress-test requirements? 
https://www.mortgagesolutions.co.uk/news/2022/06/20/fpc-to-withdraw-mortgage-affordability-stress-test-from-august/

If so, then that doesn't necessarily mean a huge change and certainly not the dropping of an affordability assessment. It might allow a few more products that permit higher Loan To Incomes than presently exist. 

chanz4

yeah thats what was querying as seems strange, any idea what will change then?

tacpot12

Seems a bonkers idea and only designed to serve the constuction industry, not consumers. 

MWT

chanz4 said:

Lenders will no longer have to apply an affordability assessment to their mortgage customers from August 2022 following an announcement from the Bank of England to remove this rule. 

ACG @K_S
 
in real terms what does this mean, does it mean no long interviews going through spending with tooth combs?

This was a recommendation by the Financial Policy Committee, not a rule, and the FCA’s Mortgage Conduct of Business responsible lending rules remain in place, so I wouldn't expect any major shift in affordability assessments.

K_S

chanz4 said:

yeah thats what was querying as seems strange, any idea what will change then?

@chanz4 To take an example -

Currently - An applicant taking out a 2yr fixed-rate at 3% with a revert to rate of 5% would need to show they could afford the monthly repayments on a rate of 8%. That's the effect of the 3% BoE stress test, effectively putting a cap on what is deemed 'affordable' to that applicant. Lenders are already permitted to drop the BoE stress test for fixed rates of 5+ years, but most mainstream lenders (not all) still applied them in any case.

After this stress test is dropped - banks can still choose to apply a stress test or not (subject to a +1% minimum mandated by the FCA) but the minimum in the above example drops from 8% to 6%. So this will give lenders a bit more flexibility to design products that allow enhanced borrowing compared to now, and for niche/smaller lenders to be more flexible with underwriting.

Without going into a lot of detail, there are other regulations still in place that limit the number of high income multiple loans that lenders can advance so it's not going to a free-for-all in any shape or form.

I would expect lenders to target any new products or underwriting flexibility at FTBs, young professionals, high-earners early in their careers, etc.

MWT

K_S said:

I would expect lenders to target any new products or underwriting flexibility at FTBs, young professionals, high-earners early in their careers, etc.

That would seem to be the most likely result of this change as it would otherwise be irresponsible to make a general shift in lending into a market with rising interest rates without some reasonable basis for assuming that income would similarly be increasing...

kingstreet

Was discussed here last month;-

https://forums.moneysavingexpert.com/discussion/comment/79281612#Comment_79281612

K_S

An example of a lender (Nationwide) enhancing potential max-borrowing after the dropping of the stress test, good for high-income PAYE applicants looking to maximise borrowing.

thegentleway

K_S said:

An example of a lender (Nationwide) enhancing potential max-borrowing after the dropping of the stress test, good for high-income PAYE applicants looking to maximise borrowing.

Weren’t banks doing 5.5x already? Pretty sure Barclays said they’d lend us 5.5 times loan to income instead of their normal 4.5x in May