What’s going on with Mortgage Affordability Checks?

Mortgage affordability checks were introduced by the Bank of England. They were implemented to protect potential property owners from taking on a debt that they may find later difficult to repay. However, these checks were withdrawn on 1st August 2022, so where does this leave the housing market and those wanting a mortgage?

What were Mortgage Affordability Checks?

When mortgage affordability checks were first launched in 2014, it was to make sure that anyone considering taking out a mortgage could afford to make repayments if their lending rate increased above their lenders 3% average rate. But the interest rate never rose above this, so the Bank of England decided this check wasn’t required.

The crux of these checks were to stop potential borrowers from taking on more debt than they could afford, and potentially be pushed into financial hardship. This ,in turn, would prevent central banks from high debt levels and avoid future financial instability.

It’s important to note that the loan to income flow limit will not be withdrawn alongside the withdrawal of mortgage affordability checks. The loan to income flow limit will still be used alongside other responsible lending rules. The reason behind this is that the Financial Policy Committee of the Bank of England sees this as a better way to protect against rising household debt.

What’s the Point in withdrawing Mortgage Affordability Checks?

It’ll benefit borrowers who may otherwise have been prevented from gaining a mortgage because of the checks. Although this doesn’t mean that it’s a free for all. Mortgage lenders will still look at applicants’ financial means and the ability to make repayments.