BoE set to relax mortgage affordability tests

The Bank of England is reportedly considering the relaxation of mortgage affordability tests in a move that fuels fears over an increase in house prices. Threadneedle Street will launch a consultation on reforming lending rules early next year, potentially allowing thousands of borrowers to take out bigger loans.
Rules introduced in 2014 to stop a property crash limit the number of mortgages that banks can lend at high loan-to-income ratios and introduce affordability checks, stopping households from building up too much debt. The BoE however, revealed it is now considering withdrawing a stress test that judges whether borrowers can afford their mortgage if their interest rate increases by three percentage points above their standard variable rate.
Officials reportedly said the affordability test provides little extra protection when interest rates are very low and removing it would make rules “simpler and more predictable” while reducing the impact on a “small proportion of borrowers.”
Economists are not happy with the plan and have warned that loosening the affordability checks could result in more large house price increases and spark worries of a property bubble.
BoE however, maintains, “The Financial Policy Committee's analysis suggests the loan-to-income flow limit is likely to play a stronger role than the affordability test in guarding against an increase in aggregate household indebtedness and the number of highly indebted households when house prices rise rapidly, and that the additional insurance provided by the affordability test would be small.”
It added that the lending cap, combined with separate affordability testing by the Financial Conduct Authority, “ought to deliver an appropriate level of resilience to the UK financial system”.