Bank of England To Relax Mortgage Affordability Tests

The Bank of England is pressing ahead with plans to scrap mortgage affordability tests despite rising interest rates.

Rules imposed on borrowers in the aftermath of the financial crisis stopped banks from granting loans to anyone who could not afford the repayments in the event that the reversion rate – usually the standard variable rate after their initial deal came to an end – went up by three percentage points.

The aim was to stop banks and building societies from offering risky loans to those who could not afford them.

The Bank is now scrapping these rules, arguing that an existing limit on mortgages with a high loan-to-income ratio and the Financial Conduct Authority’s other required affordability checks “ought to deliver the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way”.

This will of course stimulate demand and push up house prices.

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