The current Bank of England Stress Test applied to mortgage borrowing is being removed from 1st of August 2022. But what does this mean for those looking to buy a home? We find out…

What is the Bank of England Stress Test?

Another more familiar term for the Bank of England Stress Test, is the Mortgage Affordability Test. Since 2014, mortgage lenders were required to run tests on homebuyers. They had to assess whether buyers would be able to continue repaying their mortgage should interest rates increase by 3 percent.

The end of the Stress Test

From 1^st August 2022, the bank of England will no longer require lenders to ensure borrowers can repay their mortgage at a higher interest rate. The interest rate to calculate this is the standard variable rate or tracker rate, plus 3 percent. The stress test was introduced following the 2008 financial crash. Before this time there had been years of unbridled lending.

Welcome news for first-time buyers

The idea is that those who would pay less in mortgage repayments than they currently pay in rent, should be in a better position to be considered for the mortgage loan.
And this includes a lot of first-time buyers.
The end of the mortgage market affordability test will be welcome new for first-time buyers who will be able to borrow more.

Lending will still have restrictions

Although the test is due to come to an end, it won’t become a free-for-all. The financial conduct authority still requires a stress test at 1% above the agreed interest rate. Plus, there will still be restrictions on how much lending banks and building societies can do when it comes to more than 4.5 times salary.

Will the end of the Stress Test make a difference?

It will be up to lenders to confirm the changes they decide to make. With interest rates predicted to rise by as much as 3% next year, some lenders may be more cautious.
Plus, we must remember that the cost of living and interest rates are rising rapidly. This ruling may not go far enough to offset the struggle many young people will face when attempting to purchase a home. Certainly not for the short term.

Homes in the Altrincham region are in demand. If you have been considering a home move this year, contact us to get started. As local, independent estate agents, we go the extra mile to ensure you receive the best service with all aspects of your property sale. Find out more and contact us today.