Bank of England’s scrapping of mortgage affordability rules is madness
Plans to ditch mortgage affordability rules by the Bank of England are, I believe, utter madness. The new rules mean lenders will no longer have to check whether homeowners would be able to keep up their mortgage payments at higher interest rates.
The move by the central bank is bizarre, and that’s putting it mildly.
A stress test is included in the current affordability checks to cover increasing rates, so as to avoid another credit crunch as we saw in 2007/08. So, to scrap this check, when rates are going up and Britain is grappling with an economic downturn, is crazy.
Of course, and as I said to London Daily News, and other media, there are arguments that the risks are relatively low, taking into account the loan-to-income rules would remain in place. Yet they are still risks. And something borrowers and the country can do without.
A statement on Monday said the Bank of England’s Financial Policy Committee would remove the affordability test as from 1st August. It was originally brought in in 2014, with lenders having to verify prospective borrowers’ ability to repay mortgages should interest rates increase to a set stress level.
I think that in the eyes of many, this latest move by the central bank shows how it is faltering in its duty of care and, as such, failing the country during such times of uncertainty. The bank’s reaction to soaring inflation – rising at its quickest pace in 40 years – has been sluggish, impacting households and businesses hard.
Moreover, global investors are being cautioned by Wall Street analysts to hedge against an “existential” crisis with Sterling, as the currency is facing issues typically only seen in emerging markets.
Although the Pound rose 0.2% in May, it is still the third-worst performing major currency in 2022, falling 8% to $1.2468 this year.