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Michael Brown

Content Writer
Published: 01/08/2022
handing over keys to house

The loan-to-income check remains in place to help protect the financial system. 

The mortgage affordability test has been scrapped by the Bank of England (BoE) today, making it easier for some potential borrowers to access a mortgage.

The mortgage affordability test was used by lenders to calculate if potential borrowers could afford a mortgage among other bills and payments. It involved calculating whether potential borrowers would still be able to pay their mortgage if interest rates climbed up to 3%, according to the BBC.

However, the BoE has kept the loan-to-income check in place, meaning scrapping the affordability test “may not be as significant as it sounds”, according to Gemma Harle, managing director at Quilter Financial Planning.

“The loan-to-income ‘flow limit’ will not be withdrawn, which has much greater impact on people’s ability to borrow,” she said when the BoE’s intention to scrap the affordability test was announced in June.

Mark Harris, Chief Executive of mortgage broker SPF Private Clients, agreed with this view.

“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,” he said.

What is the loan-to-income check?

The loan-to-income check is another affordability device lenders use to see if a potential borrower can afford their mortgage.

It takes the amount the homebuyer looks to borrow and divides it by their salary. If the figure exceeds 4.5, then the chances of acquiring a mortgage are reduced. This is because lenders are then limited to the number of mortgages they can grant to those above this figure.

Last year, the BoE’s Financial Policy Committee believed that this check would likely play a more significant role than the mortgage affordability test in the future.

In addition, Paul Johnson, Head of Mortgages at St James’s Place, said if the loan-to-income test was withdrawn instead it would have a greater impact on the mortgage market.

What does this mean for first-time buyers?

Scrapping the mortgage affordability test will likely help certain first-time buyers, said Harris.

“It could have a positive effect on certain borrowers who have been disadvantaged when it comes to getting on the property ladder. For example, first-time buyers who have been affording rents far in excess of actual mortgage payments but have failed affordability assessments regardless,” he explained.

Harle, however, said increasing the amount of first-time buyers in the market will actually hamper some people’s chances of owning a home. This is because it will create more demand for housing and, with a limited stock, house prices will only increase further making it unaffordable for many.

“House prices have become further and further out of reach for prospective buyers and this change in the affordability rules could perpetuate unsustainable further growth as it steps up demand in a market already suffering with limited stock,” she explained.


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