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Bank of England scraps mortgage affordability tests

2nd August 2022

The Bank of England (BoE) has scrapped mortgage affordability tests to make it easier for people to find a suitable loan.

First announced in June, the affordability tests were scrapped as of Monday (1 August), meaning requirements that forced borrowers to be able to afford a 3% rise in interest rates before approval has ended.

Introduced in 2014, the test was a way of tightening mortgage markets and avoiding any repeats of misselling, which partially contributed to the 2008 financial crisis.

Although the affordability tests have gone, checks are still in place to ensure borrowers don't take on loans they cannot afford.

The loan-to-income (LTI) flow limit remains, which limits the number of mortgages lenders can grant to borrowers at ratios at or greater than 4.5 of the borrowers' salary.

The BoE said:

"The financial policy committee (FPC)judged that the LTI 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 in a scenario of rapidly rising house prices."

The FPC has also said that lenders don't need to make any changes as a result, as current affordability assessments ought to be already compliant with the Financial Conduct Authority's framework.

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