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Overview Of Recent Changes To Mortgage Affordability Rules

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The Bank of England has recently moved to relax mortgage affordability rules in a bid to help more first-time buyers make the switch from renting to buying their own home. Read on to find out more.

Mortgage affordability rules

For those seemingly trapped paying hefty sums out each month to rent, the move to relax the laws is both welcomed and a logical step.

With some renters paying out substantially more each month in rent than they would face in monthly mortgage repayments, this can lead to a catch-22 situation. Whilst renters may technically be able to meet mortgage repayments and may already be paying more in rent, due to their high rent costs, they can’t afford to save enough for the required mortgage deposit.

The decision by the Bank of England to remove mortgage affordability stress tests. The stress test meant that potential homeowners needed to prove that they would still be able to afford mortgage repayments if their mortgage rate increased 3% over their mortgage providers standard variable rate.

Why the affordability rules were introduced

When the rule was introduced in 2014, interest rates were expected to rise to 2.25% and the rule was introduced to ensure homeowners wouldn’t end up with mortgages they couldn’t afford to repay.

With interest rates expected to rise to 3% in the near future and with average standard variable rates already at an all-time high of 4.9%, clearly, with the old affordability criteria still in place, it would be even harder for people to obtain mortgages.

Lenders will still adhere to the loan-to-income 'flow limit’ and the loan-to-income ratio is the multiple at which banks will lend, based on someone's annual salary. This means that lenders will continue to limit the number of mortgages they can offer where someone is borrowing above 4.5 times their salary.

With the well-publicised price of living rise, together with interest rates at an all-time high, lenders will still be cautious in approving mortgages. According to, Santander has already factored increased national insurance, household expenditure, and dividend income tax rates into its affordability calculations. Others are expected to do the same.

The changes are great news for first-time buyers and for those who’ll be remortgaging soon. Those with smaller deposits might now find it easier to get an offer in principle and finally move away from renting.


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