As a consequence of the financial crisis, mortgage stress test were introduced in 2014 to hinder people borrowing beyond their means. The affordability test checked that borrowers are able to afford their repayments should their rate increase by a certain percentage above the lender’s standard variable rate (SVR).
The Bank of England announced in June that these stress tests would be removed with the change in place from August. What does this removal mean in practice?
Although mortgages can become more accessible – it’s worth noting that figures from the Bank of England show that, in the last year, only 6% of people take smaller mortgages than they otherwise might have as a result of the 3% rule.
Furthermore, the removal of this particular requirement does not impact other traditional ‘stress test’ requirements such as the assessment of the loan-to-income ratio. In many cases, banks cap the mortgages they offer at 4.5 times a borrower’s salary. Many lenders will also have additional requirements.
There are varied views on what this change means for the market in general. In principle, it could increase the buyers pool, which in turn could push prices up. However, given the small proportion of buyers impacted of the rule – we believe it’s unlikely to cause huge disruptions to the Southampton and wider property market.