The Bank Of England Has Scrapped The Mortgage Affordability Test

First-time buyers trying to get on the property ladder may now stand a chance in today’s property market as the Bank of England has scrapped the mortgage affordability test.

The test, in which lenders would previously calculate whether customers hoping to borrow money towards their homes would be able to handle their repayments should interest rates climb up to three percent, has now been withdrawn.

The new rule has come into effect today (1 August) after the bank previously announced plans to remove it in June of this year.

Barclays described the old test as one ‘that hundreds of thousands of would-be home buyers have to take every year'.

The bank added: "Pass and you’re a big step closer to buying a home; fall short and you could end up having to think again."

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Those that took the previous test had no choice but to address situations like a setback in their finances, should they have lost their job. 

Meanwhile, the test also potentially made it trickier for self-employed or freelance staff to access mortgages.

Barclays said of the test: "Think of it as a forensic look at all your personal finances, to check for proof you can afford the home loan you want.”

The new scheme may therefore help some future homeowners access loans, including those who have previously been refused mortgages. 

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Mark Harris, chief executive of mortgage broker SPF Private Clients, previously described the removal of the test as 'good news, particularly for first-time buyers who should be able to borrow more'.

However, there are different rules that banks may follow, like the strict loan-to-income limits that may still affect people getting a mortgage.

Harris explained: "Scrapping the affordability test is 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.

"Lenders will also still use some form of testing but to their own choosing according to their risk appetite."

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The test was first introduced in 2014 in an attempt to restrict the mortgage market in the wake of the 2008 financial crisis, which came in part after lenders offered mortgages at more than 100 percent of a property's price, often without asking for proof of income. 

Bringing in the test, therefore, aimed to ensure borrowers would be able to repay their loans and would not threaten the financial stability of lenders.