VALUATION

Borrowing made easier thanks to BoE announcement

 So-called ‘stress tests’ are to be dropped as lending returns to a traditional ‘wage-to-income’ framework.

It’s only natural to fixate on the interest rate if you are hoping to take out your first home loan or remortgage as part of a move but while the Bank of England has steadily increased the base rate (currently 1.25% as of early July and still a very low level), it has made a positive announcement to help borrowers.

 

The Bank’s Financial Policy Committee will be withdrawing the mortgage market affordability test recommendations – also referred to as ‘stress tests’ – which were introduced in 2014 to avoid overborrowing and another credit crunch.

 

The affordability tests were applied to borrowers to ascertain whether they could afford the mortgage repayments – not only upon completion but also in the future, should their personal circumstances change and the mortgage rate rise.

 

The tests saw lenders and financial advisers scrutinise the outgoings and plans of borrowers, with aspects such as gym memberships, regular hairdressing appointments and even plans to have children seen as detrimental in the borrowing process.

 

The relaxing of the mortgage lending criteria will see the process revert to a traditional loan-to-income framework, with lenders loaning on a case-by-case basis looking at individual circumstances and wages. First-timer buyers are set to benefit the most from the change, as they can demonstrate that they already afford a monthly rental sum.

 

If you would like to know how your borrowing prospects have improved in the wake of the Bank of England’s announcement, contact us. Aspire can make you an appointment with an independent financial adviser from Capricorn Financial.