On 20 June 2022, the Bank of England confirmed that it will be withdrawing its mortgage affordability test recommendation. The withdrawal will come into effect from 1 August 2022.

The mortgage affordability test was introduced in 2014 to guard against a loosening in mortgage underwriting standards and a material increase in household indebtedness. The test specifies a stress interest rate for lenders when assessing prospective borrowers; ability to repay a mortgage.

The loan to income ‘flow limit’, which limits the number of mortgages that can be extended to borrowers at LTI ratios at or greater than 4.5, will not be withdrawn.

In February 2022, the FPC consulted on the proposal to withdraw the affordability test and maintain the LTI flow limit.

The responses were as follows:

  • The majority of responses – including those from all four trade bodies- were supportive of withdrawing the affordability test, and agreed with the FPC’s assessment that the LTI flow limit and the FCA’s MCOB framework ought to provide the appropriate level of resilience,
  • Some respondents noted that the LTI flow limit was the more appropriate instrument for macro-prudential policy.
  • The consultation feedback did not provide any evidence to suggest that removing the affordability test would have a significant impact on the mortgage or housing markets.