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 However, these checks were withdrawn on 1st August 2022, so where does this leave the housing market and those wanting a mortgage?
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It’s important to note that the loan to income flow limit will not be withdrawn alongside the withdrawal of mortgage affordability checks.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.
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.
Their duty of care hasn’t changed. But it does mean that first-time buyers with smaller deposits and incomes may be able to take their first step on the property ladder. This will undoubtedly have a positive impact on the housing market and wider economy.
This will help keep the UK’s financial systems stable, and possibly mean more flexibility and innovative ways lenders approach mortgage applications. Even though it means no more checks when it comes to affording mortgage payments at a higher interest rate, there are still enough checks in place to make sure that homeowners can keep up with their mortgage repayments.
Your mortgage lender or mortgage broker, like Trussle, will apply the relevant checks to see if you qualify for a mortgage. But before this point, you’d have naturally worked out what you can afford when it comes to taking out a mortgage.
If you need some help with this, you can seek independent advice from a mortgage broker who’ll be able to find the best deal for you, without you having to repeatedly complete applications with various lenders.
When it comes to taking out a mortgage, you should consider your finances in the years to come. Are you planning to have children? What about your retirement? Do you want to go on holiday? Careful consideration of your income and outgoings, and adding a bit of flexibility to take into account potential changes, including to the housing market, will make sure you’re comfortable in the years ahead.