The Bank of England has scrapped its mortgage affordability test which may help self-employed or freelance workers qualify for loans. The removal of the test, which was used to calculate if borrowers would be able to afford their payments if interest rates climbed up to three per cent, was announced but has now come into effect.
While scrapping this test may help some people to get mortgages, other rules such strict loan-to-income limits could make it more difficult.
Mark Harris, chief executive of mortgage broker SPF Private Clients told the BBC: “Scrapping the affordability test is not as reckless as it may sound. The loan-to-income framework remains so there will still be some restrictions in place; it is not turning into a free-for-all on the lending front.”
“Lenders will also still use some form of testing but to their own choosing according to their risk appetite.”
In 2021 the Bank of England reviewed its rules and decided 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 loan-to-income limits still mean that borrowers won’t be able to take on loans that they can’t afford and the “flow limit” restricts the number of mortgages that lenders can grant to borrowers at ratios at or greater than 4.5 the borrowers’ salary.
While there are still limits, the new rules mean that people who have been comfortably paying their rent at a higher rate than their potential mortgage won’t fail affordability assessments.
“The rule change could have a positive effect on borrowers who have been disadvantaged when it comes to getting on the property ladder. The biggest constraint on new mortgages is the ability of borrowers to afford a deposit,” added Harris.
