Mortgage affordability stress test to be axed from August 2022

*This article was updated in August 2022 following the stress test announcement. Some information may no longer be current.

The Financial Policy Committee’s (FPC) decision to remove the affordability stress test means that more people could get a mortgage.

What is a stress test?

Launched in 2014, the stress test requires borrowers to prove they can afford their monthly repayments should their mortgage rates increase three percent above the lenders’ standard variable rate (SVR).

While the affordability stress test will be scrapped, the Loan to Income (LTI) limit will remain, meaning a limit will stay on the number of mortgages given by a lender with a LTI ratio of more than 4.5 times a person’s income.

Is this the right move?

These changes have raised concerns over irresponsible lending, as seen in the financial crisis of 2007-2008. 

Despite concerns, the Financial Conduct Authority’s (FCA’s) Mortgage Conduct of Business (MCOB) states “analysis suggests that the additional insurance provided by the affordability test is small. A framework without the FPC’s affordability test recommendation would therefore be simpler and more predictable.” This suggests that the LTI limit is enough to guard against loose lending.

The decision to remove the stress test and maintain the LTI limit was taken to vote in February, with the majority vote in favour of the movement. Voters included mortgage providers and intermediaries, individual organisations, various lenders, and members of the public.

How will this benefit buyers?

With the upcoming removal of the stress test, by August, borrowers could more easily get a mortgage as there will be less criteria to meet. With this change aligning with the potential decrease in house prices, we could see an increase in first time buyers getting on the property ladder.

Get in touch with an expert mortgage adviser to discuss how this could impact you and your application.

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