In June, the Bank of England announced their plans to abolish the stress tests associated with mortgage rates in a bid to improve affordability.
At the moment, mortgage stress tests are set at 3%. This means that borrowers must still be able to afford their mortgage repayments should their rate increase to 3% above the lender’s standard variable rate (SVR).
Lenders are already taking into account the rising costs of living when considering who they can lend to, and the Financial Conduct Authority are keen to retain a 1% stress test to accommodate rising rates, however the relaxation of these tests could help would-be buyers who have been refused mortgages that have lower repayments than the sum they pay in rent each month. A consultation by the Bank found that in order to qualify for home loans people were taking mortgages over longer terms, or on longer-term fixed-rates, which meant paying more overall.
Ultimately the changes will allow lenders to treat cases on a more bespoke basis, judging affordability against real time affordability and encompassing some flexibility around stress testing. This is especially good news for first-time buyers but could also pass on benefits for those looking to remortgage or alter their home ownership status.
If you’re not sure how the stress testing will affect you and your mortgage, please get in touch for a no-obligation conversation.
Your home or property may be repossessed if you do not keep up repayments on your mortgage. You may be charged a fee for mortgage advice.
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