The Bank of England has launched a consultation looking into scrapping rules limiting. How much people can borrow when they take out a mortgage. If the rules, which were introduced in 2014 in response to the financial crisis, are removed, then borrowers will be able to take out larger mortgages, which will be welcome in a time of rising property prices.
The current rules mean that lenders have to stress test the mortgage to ensure that the borrower can afford it. Not just at the introductory low rate of interest when they take out the loan. But also should interest rates rise to a much higher level. The problem is that this level is higher than interest rates have been for some time which means certain borrowers. Particularly those on tight budgets, have not been passing the affordability test. Those in need of a large loan may find that it is impossible to achieve the level of funding that they need if rates were significantly higher. Even if they can comfortably afford the repayments at the current level of interest.
While removing these rules would in theory mean borrowers will be able to take on bigger mortgages, in many cases they will still be restricted by the loan-to-income ratio so we will not be seeing reckless lending. Lenders have a limit on the number of mortgages they can offer at more than 4.5 times a borrower’s salary; some lenders are prepared to lend more than this to professionals or contractors on higher incomes. But not all are sympathetic.
Anyone taking out a mortgage should seek advice from a whole-of-market broker such as AWS Private Finance. We can advise you as to where to go to get the best mortgage for your circumstances and have particular experience in arranging large loans for contractors and professionals. Please get in touch for more information.