Major mortgage rule shake-up coming within DAYS – how it affects you | The Sun

HOMEBUYERS could be able to get a bigger loan following a major rule shake-up due to come within days.

An affordability test for mortgage lending will be dropped by the Bank of England from August 1.

Mortgage lenders currently have to follow rules on affordability set by the Bank of England.

The first of these rules is a stress test to check the buyer's finances.

When you apply for a fixed rate mortgage, you lock in your interest rate for a set period of time.

Once this time is up, you are switched over to something called a "reversion rate" – which is usually higher than you were paying before.

Read more in Money

Our money saving experts share 22 tips to help you save THOUSANDS

Energy bill changes include MORE protection so customers don’t lose balances

Under the test, you need to prove you can pay a rate that is three percentage points higher than the reversion rate.

This rule has meant that many people have not been able to take on as big a mortgage as they might have been able to afford.

But the Bank of England is now scrapping this test – which could mean that you can take out a much bigger mortgage.

It follows a consultation on the potential impacts withdrawing the affordability recommendation could have on mortgage lending.

The second rule is the the loan to income (LTI) "flow limit", which restricts the number of mortgages that can be extended to borrowers at LTI ratios at or greater than 4.5.

This will not change next month.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said the change could have a positive effect on borrowers who have been struggling to get on the ladder.

"For example, first-time buyers who have been affording rents far in excess of actual mortgage payments but have failed affordability assessments regardless," he said.

What does it mean for buyers?

Dropping the affordability checks should make it easier for prospective home buyers to apply for a mortgage.

Under the current rules, when you apply for a fixed rate mortgage, you lock in your interest rate for a set period of time.

After this period, you are switched over to a reversion rate.

You need to prove you can pay a rate that is three percentage points higher than the reversion rate.

The rule has typically meant people cannot afford as big a mortgage as they might have been able to afford.

Now the Bank of England has scrapped the rule, you should be able to take out a bigger mortgage.

However, you should always consider how much you can afford, and stay within reasonable limits.

Gemma Harle, managing director at Quilter Financial Planning, said the change might not actually help first-time buyers get their foot on the property ladder.

She said: "One of the main drivers behind "generation rent" is the fact that house prices have massively outstripped wage growth.

Read More on The Sun

I spent £43k to look like my idol Pamela Anderson – blokes always say same thing

ALL British Airways flights at risk this summer due to strike threat

"Due to high house prices, first-time buyers also need very sizable deposits.

"On top of this, inflation will be eating away at any other savings they have sitting in cash."

We pay for your stories!

Do you have a story for The Sun Online Money team?

Email us at [email protected]

    Source: Read Full Article