It's now become easier to get your foot on the property ladder, as the Financial Policy Committee has confirmed it will withdraw one of its affordability tests.
However, before we all get busy on Rightmove, there are still checks in place for lenders to pass before they hand out mortgages for our dream homes.
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Previously, prospective buyers had to prove not only could they afford regular mortgage repayments, but they could still afford them if the interest should rise to three percent. The test was introduced 'to guard against a loosening in mortgage underwriting standards and a material increase in household indebtedness that could in turn amplify an economic downturn and so increase financial stability risks,' the Bank of England said.
This 'stress testing' is what many hopeful buyers found they could not meet with their finances, and were turned down for loans.
The reason for the test was to check that if you suffered a financial setback such as losing your job, then you could still afford to pay your mortgage. However, this test was often deemed unfair for those who work freelance shifts or are self-employed.
The test has also been described previously by Barclays Bank as 'a test that hundreds of thousands of would-be home buyers have to take every year', adding: "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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The bank also added: "Think of it as a forensic look at all your personal finances, to check for proof you can afford the home loan you want."
However, now the test which was put into place in 2014 has been withdrawn as inflation soars in the UK.
Following a review earlier this year, the Bank of England removed the test and have focused the income test on the loan to income (LTI) ‘flow limit’. This means the assessment of affordability is wider, and is 'the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way'.
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The withdrawal of the test was announced in June, but it has only come into effect as of Monday, August 1.
Claire Flynn, mortgages expert at money.co.uk said: "Given the cost of living crisis, the removal of the requirement for an affordability test likely comes as good news to many. That’s because it could allow more people to get on the ladder as they can take out larger mortgages.
"However, borrowers will still need to meet the loan-to-income ratio, which could still prevent some from getting the mortgage they require to buy a home.
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"There is also a risk that with fewer restrictions, some buyers will take out loans that they are unable to afford. That’s why it’s integral to plan ahead to make sure you don’t commit to a repayment plan that you can’t manage."
Niamh Spence