The Bank of England’s Financial Policy Committee is consulting on scrapping one of its affordability measures – the stress test.

If the stress test is withdrawn, some borrowers could find it easier to borrow more.

What is the stress test?

Currently, lenders need to check whether borrowers could continue to afford their mortgage if their mortgage interest rate increased to three percentage points above their Standard Variable Rate.

This arguably stops some borrowers from being able to borrow as much as they need and can afford, particularly in high value areas, such as London.

Scrapping the test could give lenders more flexibility when they assess how much borrowers can afford.

Remaining rules

Even without the stress test lenders still operate under strict rules, which will remain.

They need to limit the share of mortgages they lend at over 4.5 times the borrower’s income to just 15% of all their new lending.

In addition, they need to assess the borrower’s affordability and must still look at what would happen if rates were to rise. But the FPC proposal is simply that the strict ‘three percentage points over SVR’ test wouldn’t need to be applied.

It stated that ‘the FCA’s rules on affordability testing combined with the FPC’s loan-to-income limits should be enough to protect UK financial stability’.

It also thinks the move would make the rules simpler.

Paul Broadhead, head of mortgage and housing policy at the BSA said: “We welcome the Financial Policy Committee’s intention to withdraw the affordability stress test for new mortgages.

“This measure mainly impacts certain borrowers, such as first-time buyers and those looking to buy in the South East, who can clearly afford a mortgage but are hindered by the requirement to test that they could still pay their mortgage if rates were in the region of 6%+.

“Lenders will continue to check that a mortgage is affordable both now and if interest rates increase in line with market expectations.”