Bank of England wants to lift mortgage interest rate rule | Bank of England

The Bank of England has announced plans to relax mortgage rules to make it easier for thousands of first-time buyers to climb the real estate ladder.

The central bank said it wants to remove a requirement that forces borrowers to afford a three percentage point hike before they can be approved for a home loan.

Eliminating the requirement could help 1% of UK renters – around 50,000 people – who fail the affordability test. Another 6% of the mortgage borrowers – around 35,000 people – would have been able to secure a larger loan without the regulation.

In a development amid a housing price boom during the pandemic, the bank said a rule limiting some new lending to 4.5 times a borrower’s income, as well as separate affordability criteria from the Financial Conduct Authority, are enough to get ahead Protect excessive risks in the mortgage market.

She will be debating the change in the first half of next year, as part of a revision of measures first introduced in 2014 after the 2008 financial crisis to curb excessive risk-taking by high street lenders.

Andrew Bailey, the bank’s governor, said the abolition of the affordability requirement should not be viewed as a relaxation of lending standards, as the rule that limits some new mortgages to 4.5 times the borrower’s income is the biggest constraint on riskier ones Represents lending.

“We don’t see a loosening of the regulations in this, but rather an aspect of efficiency, because with evidence going back seven years we were able to determine the effectiveness of the tests,” he said.

When the bank issued its regular financial stability report, Bailey said the UK financial system was well equipped to deal with a potential renewed economic downturn caused by the advent of the Omicron variant of the coronavirus.

“Right now, I don’t think we are in a market-related situation,” he said, pointing out that the global financial markets moved because of the Omicron, but nowhere near anything like it Stress levels are approaching like in early 2020 when the pandemic first spread.

“I don’t think it’s going to be a major stressful event,” he said.

Threadneedle Street released the results of its annual banking system stress tests, saying the UK’s eight largest banks had sufficient resources to continue lending to the UK economy in a stronger downturn than it did in 2020.

The bank said it would force lenders to pay about $ 11 billion, with the buffer set at 1% with a twelve-month implementation period.

It said it expects the buffer to increase further to 2% – which equates to a capital of about $ 22 billion.

Threadneedle Street canceled its stress tests last year during the first wave of the pandemic, stating that the bank’s resources should be aimed at helping households and businesses in dire straits.

First run in 2014, the tests were developed after the 2008 financial crisis to see if the UK’s largest banks can continue to lend during a recession.