Mortgage advisors have indicated that they are confident that the industry has put in place the rules concerning affordability that are needed to ensure that rising living costs do not lead to a rash of mortgage defaults.
This comes in the wake of a decision by the Financial Policy Committee (FPC) for the Bank of England to get rid of the mortgage lender stress test. The policy was introduced eight years ago and, under its terms, lenders had to apply hypothetical 3% interest rates as a way of testing whether a particular borrower could afford a mortgage or not.
There was some controversy over the axing of this test in the current economic climate, with many industry observers stating that it was a confusing decision. However, some mortgage advisors are now arguing that lenders have introduced new rules to make sure that people do not take out loans that they cannot afford, rendering the 2014 stress test unnecessary.
Then there is the loan-to-income limit brought in by the FPC at the same time as the stress test that imposes tight restrictions on how many loans well above the income of borrowers that lenders are allowed to approve.
The managing director of Coreco, Andrew Montlake, stated that the industry and economy will not suffer due to the abandoning of the stress test because lenders have their own rules and are extremely conscious of affordability right now.
This will be encouraging for any advisor who has the CeMAP qualification and is already dealing with a heavy workload.