The Bank of England may ditch affordability rules for mortgages.
The bank has launched a consultation about whether to abandon the rules, which were introduced in 2014 to guard against a material increase in household debt and a replay of the 2008 financial crisis.
The two rules were a loan-to-income limit and the affordability test, which specifies a “stress interest rate” for lenders to consider when assessing a borrower’s ability to repay a mortgage.
A recent analysis found that the loan-to-income limit is likely to play a stronger role than the affordability test in guarding against the number of highly indebted households. It limits the number of mortgages that can be issued at a loan-to-income ratio of more than 4.5 times salary to 15%.
The bank is seeking views on a proposal to withdraw the affordability test in a consultation to see how the mortgage market might respond and to outline the potential effects on the housing market. The consultation will close on 6 May, after which responses will be considered by the bank’s financial policy committee.
The loan-to-income limit – without the affordability test but alongside the wider assessment of affordability required by Financial Conduct Authority rules – should give an appropriate level of resilience, but in a simpler, more predictable and more proportionate way, the consultation paper said.
