The Bank of England has confirmed that it will scrap its mortgage stress test from August.
The move comes despite five successive interest rate rises and the largest forecast fall in household living standards since records began.
In March, the bank’s Financial Policy Committee proposed withdrawing affordability rules that were drawn up after the financial crisis and require banks to check whether borrowers can afford to repay at an interest rate three percentage points higher than their lender’s reversion rate.
This has meant that, since 2014, borrowers have been tested on whether they can afford interest rates of about 7-8% at a time when rates on fixed mortgages have fallen below 1%. The bank said the test restricted about 30,000 borrowers a year to smaller mortgages than desired.
It will be replaced by looser Financial Conduct Authority rules based on expected future interest rate rises, which require a minimum stress test of one percentage point above a borrower’s mortgage rate.
The average standard variable rate paid by UK mortgage borrowers reached its highest level in 13 years this month.
According to the financial firm Moneyfacts, the average SVR had gone up to 4.91% at the start of June, and was up by 0.51 percentage points on December 2021. It is now at its highest level since February 2009.
