Bank of England to ditch mortgage stress test from August
The Bank of England has announced that it will withdraw its mortgage stress test from the start of August this year.
In March, the bank’s Financial Policy Committee proposed withdrawing affordability rules that were put together after the financial crisis and require banks to check whether borrowers can afford to repay at an interest rate 3 percentage points higher than their lender’s reversion rate.
The test will now be replaced by the Financial Conduct Authority’s looser Mortgage Conduct of Business (MCOB) responsible lending rules, which the bank said “ought to deliver the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way.”
The FCA rules require a minimum stress test of 1 percentage point above a borrower’s mortgage rate. However, the ban on banks extending more than 15 per cent of new mortgage lending to customers wanting to borrow 4.5 or more times their income will remain in place.
The bank said that the majority of responses – including those from all four trade bodies – were supportive of withdrawing the affordability test.