Mortgage stress tests could be relaxed, and it may boost your budget

Posted on

The Bank of England (BoE) is reviewing the stress tests that mortgage lenders must carry out. For those looking to purchase a house, it could improve their chances of securing the money they need to buy a home and may mean you can borrow more.

Stricter rules for mortgage borrowing were introduced after the 2008 financial crisis. Before the crisis, some borrowers overextended themselves and it was possible to take out a mortgage up to 125% of the property’s value. As property prices fell and unemployment rose, this led to some homeowners finding themselves in negative equity and the number of homes being repossessed increased.

In a bid to ensure borrowers weren’t taking out unaffordable mortgages, the BoE introduced stricter stress tests.

The Bank of England could remove its reversion rate affordability test

One of the measures the BoE introduced after the financial crisis was an affordability test known as a “reversion rate”. The test was designed to ensure that borrowers could continue to meet repayments even if interest rates began to rise from their historic lows.

To pass the affordability test, mortgage applicants have to prove that they could pay their lenders’ higher standard variable rate, plus 3%. However, the central bank is considering relaxing or removing this test, which could make the property market more accessible for first-time buyers and those that want to step up the property ladder.

2 potential outcomes of relaxing the reversion rate

1. You may be able to borrow more

If the reversion rate is removed, you may be able to borrow more to purchase a home.

According to the Telegraph, if the rules were eased to cover a reversion rate plus 2%, rather than 3%, average borrowing power would increase to five-and-a-half times income. This would be the equivalent of being able to borrow 10% more to buy a home. For the average first-time buyer, it’s estimated that it would boost their budget by more than £17,000.

If you’re struggling to find a home within your budget, the change could help you reach your goals.

2. House prices could rise

There are concerns that changing affordability rules could push house prices up even further.

According to the Halifax House Price Index, house price growth is at a 15-year high. In November 2021, the average house price in the UK reached £272,992 after annual growth of 8.2%.

Homebuyers have already found themselves in a competitive market and, with the ability to borrow more, house prices could continue to climb if borrowing rules were eased.

It’s still important to understand your affordability

While the BoE may relax affordability checks, it’s still important to have confidence in your ability to meet repayments.

For many people, their mortgage is the largest loan they’ll take out and it will often be repaid over decades. As a result, you need to consider how you’ll keep up with repayments and what will happen if your circumstances change.

Interest rates have been low for over a decade. For mortgage holders, it’s made borrowing more affordable, but it’s expected that rates will gradually rise. In December 2021, the Bank of England increased its base rate from 0.1% to 0.25%, and it’s anticipated that the base rate will continue to slowly increase. The change in December is likely to have affected mortgage holders on variable- and tracker-rate mortgages immediately and may affect fixed-rate mortgage holders when their current deal comes to an end.

If you’re repaying a mortgage, reviewing how your repayments could increase and what is affordable can help give you confidence.

As interest rates begin to rise, it’s also crucial that you find the right mortgage deal for you. It could reduce the amount of interest you pay or provide you with more flexibility. Even a small change in interest can save you thousands of pounds over the full term of your mortgage.

Even if you already have a mortgage deal in place, you should make a note of when it ends. Usually, you’ll be moved on to your lender’s standard variable rate, which typically isn’t competitive and may not suit you. Remortgaging could help you reduce the cost of borrowing.

If you need to take out a mortgage, approaching lenders that are right for you can help improve your chances of securing the mortgage you need and accessing a competitive interest rate. Please contact us to discuss your mortgage needs.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

 

We aim to keep our clients up to date on interesting and relevant financial news.

You can sign-up to receive our monthly newsletter by email, even if you’re not yet a client. Sign-up using the form below.

Client testimonials

I have always found Black Swan to be caring and understanding of my quirky lifestyle. I always feel they try to get me the best returns while respecting my current needs.

Sally Muir

A client since 2011

We would be very happy to recommend the support and service we receive.

Valerie Locks

A client since 2010

I have always been completely useless regarding finance - thankfully our financial adviser is not! I've retired with far more than I ever expected and investments continue to grow safely. So - thank you!

Bernadette Jane Warner

A client since 2000

Very happy with the professional service I have received and feel a lot happier now with my finances put in order.

Martin Field

A client since 2011

Julie Cooper was recommended to me by a work colleague. She has been very helpful, professional and has explained everything well. I would definitely recommend her services to anyone else who are interested in a financial review.

Steven Rooke

A client since 2018

…Service has been first class.

Hugh Fells

A client since 2012

My face to face meetings with Rob Young and Jessica Lyons have always been very open and understandable. My questions have been answered clearly and I have left feeling that my financial matters are in good hands.

Sandra Jack

A client since 2000

[A] safe pair of hands in a complex financial world.

Gary Middlehurst

A client since 2003

A reliable company with good communication skills and good knowledge of the financial markets.

Alan Evetts

A client since 2014

Maureen Pembridge is a long-time trusted advisor to our family. The market might fluctuate but her attention to detail is consistent.

Linda Burnard

A client since 2000

I am pleased to recommend Julie as a trustworthy financial advisor. She explains financial jargon in plain language, and always listens carefully to my particular financial needs and has helped me make the best of my savings.

Carolann Samuels

A client since 2010

I have always been satisfied with the way that Black Swan has handled my account. And I have always found the staff very helpful whenever I need to call the office.

Robert Anthony Matthews

A client since 2012

An excellent personal service from a person I know and trust.

Michael Dalton

A client since 2010

I am getting a very good services from Black Swan, they have got my investments sorted out which was in a bit of a mess.

Roy Jakens

A client since 2012

A good, efficient team providing clear ideas to shape a winning strategy.

Adrian Michael Levenstein

A client since 2011

Black Swan is a company to be trusted, with friendly staff and professional advisors.

David Brian Jennings

A client since 2017

I have been with Black Swan for many years. I have never wished to change anything. They give a good straight forward service.

Martin Barrett Brooks

A client since 2010

Andy Peters has been invaluable in firstly combining several pension pots and then giving excellent investment advice. It has given us a great deal of comfort to know that our financial affairs are in such good hands.

James Guillum Scott

A client since 2014

I find my financial advisor easy to talk to and feel that she understands my lifestyle. She is always available for help when I need her and explains in words that I can understand.

Margaret Ena Glasgow

A client since 2000

Andy is a first rate Director, excellent communicator and leader.

Ross Perry

A client since

Black Swan Financial Planning and Andrew in particular, are very clever at working out how risk averse we are, and coming up with solutions that we feel comfortable with. We are happy in the knowledge that we can continue to enjoy a comfortable retirement. Andrew Peters is a very, very friendly person who is great to chat to and easy to deal with. He explains things very clearly in layman’s terms, and if we still don’t understand, he explains it until we do!

Alan & Jane Dyer

Clients since 2012

We have always found Rob [Young] to be very approachable and knowledgeable. We have every confidence in the advice given and feel comfortable with the decisions we’ve made. There are certain opportunities that we wouldn’t have known about if Rob hadn’t brought them to light, which makes the advice good value for money as far as we’re concerned.

Peter & Pauline O’Halloran

Clients since 2013

Rob [Young] is extremely knowledgeable. I knew nothing about the different types of trusts which will not only secure my income in retirement, but also leave a legacy for my children. I’m glad that I sought his advice when I did.

Sarah Wilson

A client since 2015

I am extremely happy with the service afforded to me by the company and my adviser Julie Cooper.

Geoff Coxell

A client since 2010

My wife and myself have been dealing with Black Swan for a number of years. We have met with different representatives from the company over the years and have found all very helpful in their own way. We met with James [Anderson] a few years ago and found him very helpful and knowledgeable. He keeps in contact with us on a regular basis. We find the Company information very helpful and we feel very secure with our finances.

Andrew Kirchen

A client since 2015

I have always found my adviser to be easy to contact, very professional in his approach, yet friendly and understanding. I have a sense of an experienced company behind him, really on the ball financially and with good standards.

B McBean

A client since 2011

Partner with the most reliable and experienced team of advisers

Enter your details & we'll be in touch to discuss your needs.
Alternatively, contact us directly and speak to a member of the team.





    Subscribe to our newsletter