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What Is A Mortgage Stress Test?

A few weeks ago, the Bank of England’s Financial Policy Committee published a consultation on whether or not to withdraw the mortgage affordability stress test, which was first introduced back in 2014 to protect against an increase in financial stability risks.

What this means in practical terms is that some would-be homeowners have to take smaller mortgages than they might be able to get otherwise, with lenders considering their ability to repay a mortgage if rates climb by a specific amount, or if their personal circumstances change.

If lenders think you may be unable to make repayments for various reasons, such as for a career break or having a baby, they may decide to limit the amount they lend.

This is why it’s necessary to calculate both income and expenses before you apply for a mortgage, so you can work out which product is the best deal for you.

However, it seems that this may soon be a thing of the past, which could open up more opportunities and allow you to take out a bigger mortgage, if the Bank of England’s proposals are accepted.

Limits will still be placed on what people can borrow in relation to their incomes and lenders will not allow households to borrow more than 4.5 times their annual income. And lenders will still be required to check that people can afford to make repayments based on predicted interest rates in the first five years of the loan.

But this still may well be very welcome news for anyone looking to purchase a new house in the future, as it will improve affordability in the short term.

Looking for a mortgage advisor in Liverpool at the moment? Get in touch with Cassidy Mortgages today.

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