Mortgage brokers and lenders are calling for the “stress test” which is applied to borrowers during the application process, to be reduced.
The reason given is that lenders are “locking people out of the market” when they apply the stress test. In 2014, regulations were introduced by the Financial Policy Committee (FPC) of the Bank of England to test whether borrowers would be able to afford to repay the mortgage if the interest rates rose three points above their current position, during the initial five years of the loan. However, stress rates generally reached 5% and above, once lenders had applied their margins.
The chairman of the Council of Mortgage Lenders (CML), Peter Hill, stated that regulators should reconsider the hypothetical interest rates, as the economy had experienced changes since the new rules had been introduced. Hill added that he didn’t think that current stress rates were realistic at the current time, and that it appeared to be unlikely that interest rates would reach that level during the next five years. However, he also added that was his personal opinion, and not that of CML. In November, the FPC stated that the 3% stress test level was proportionate, and that as mortgages were generally long term, they were prudent.
Fixed rate deals for terms of five years or more are exempt from the test, although brokers stated that lenders will still applying the stress test. As the regulations are complex, it is advisable to seek advice from a CeMAP qualified mortgage adviser.
