Tough rules brought in during 2014 to restrict the amount mortgage applicants could borrow may be reversed following a review by the Bank of England. After the credit crunch and global financial crash in 2007 and 2008, precipitated by mortgage lenders approving millions of loans to borrowers with no ability to repay them, the Financial Conduct Authority introduced strict rules governing how lenders assessed mortgage applications. Instead of lending borrowers a multiple of their annual salary, mortgage lenders had to consider the applicant’s income, expenses and base the amount they would lend on the difference. Known as “affordability assessments”, borrowers also have to be able to show they could afford their mortgage repayments. Further rules from the Bank of England force lenders to “stress” this affordability should their mortgage rate be 3% more than its standard variable rate for two-year fixed rates. The change drastically reduced the amount people could “afford” to borrow if taking a fixed term deal for fewer than five years, after which the 3% “stress test” does not apply. Now the Bank of England believes the affordability stress test could be removed completely without jeopardising the economy’s stability, meaning lenders could go back to lending to borrowers based on income multiples. Letting people borrow more money looks like a risky move at a time when house prices are sky-high and the outlook is uncertain.

But the Bank is convinced the extra test isn’t fair anymore, and that without it, there are still enough protections in place.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of March 2022 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.