Uk News How scrapping the mortgage affordability rule will change what you can borrow to buy your home United Kingdom news

PremierLeague-News.Com - Mortgage borrowers who fall short on other affordability tests may be able to take on more debt

Uk News How scrapping the mortgage affordability rule will change what you can borrow to buy your home United Kingdom news

PremierLeague-News.Com - Mortgage borrowers who fall short on other affordability tests may be able to take on more debt

Uk News  How scrapping the mortgage affordability rule will change what you can borrow to buy your home United Kingdom news
21 June 2022 - 10:30

PremierLeague-News.Com - Breaking Sport Transfer News ! A change in mortgage rules that says lenders no longer have to check whether homeowners could afford repayments at higher interest rates could mean that some people are able to borrow much more to buy their home.The Bank of England’s “mortgage market affordability test” was first introduced in 2014 to ensure that borrowers did not take on debt that they could not afford. It was designed to avoid deepening any economic downturn or risking financial stability if interest rates suddenly shifted higher.But the central bank is scrapping the test after deciding that other measures, including regulations that cap how large a mortgage can be depending on the income of borrowers, are “likely to play a stronger role” in keeping household debt under control. The Bank of England added that other rules “ought to deliver the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way”.It comes after the bank raised interest rates for a fifth time in a row to 1.25 per cent last week as part of efforts to tackle soaring inflation, which will correspondingly mean many borrowers are paying higher interest rates on their mortgage payments. Commentators have noted that while some may find the change confusing given those rate rises, the risks to the wider economy are relatively low given the other protections in place from the Bank of England.It also could mean that borrowers who fall short on other affordability tests may be able to take on larger mortgages, particularly as the cost of living crisis eats into their spending power. “Banks still won’t be able to lend more than 15 per cent of mortgages to people with borrowing over 4.5 times earnings, and they have to meet FCA affordability standards too,” said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown. “This means they have to be confident borrowers can pay the mortgage when weighing up their income and expenses, and they have to take market expectations of future interest rates into consideration too.

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.“This isn’t necessarily going to open the floodgates for borrowers, so anyone struggling to afford a mortgage right now shouldn’t assume this is going to solve their problems at a stroke,” she added.More from Property and MortgagesAsking prices hit fifth record this year but there are signs pace of growth is slowing20 June, 2022As Help to Buy comes to an end, experts reveals the best alternatives for first time buyers18 June, 2022A beginner’s guide to buying a house at auction, from having a bidding strategy to studying the catalogue18 June, 2022“Just because the recommendations change it doesn’t mean that banks will automatically change the way they look at things; they still have a duty of care, have to be seen to be lending responsibly and also have their own internal risk committees that they would need to get any changes by,” she explained.“What this will allow is for additional discretions or innovations by lenders. Perhaps it could inspire some lower stress rates for those that need it most with low income but with perfect credit and years of experience paying their rent.”Mark Harris, chief executive of mortgage broker SPF Private Clients, said the change was “not as reckless as it may sound”. “The loan-to-income framework remains so there will still be some restrictions in place; it is not turning into a free-for-all on the lending front,” he explained. “Lenders will also still use some form of testing but to their own choosing according to their risk appetite.”“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.“The rate environment and expectations have changed significantly since the rules were introduced when borrowers were tested to ensure that mortgage repayments could be met should rates be in the region of 6 to 7 per cent.”

Source = PremierLeague-News.Com

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