The Bank of England has ditched the affordability test that lenders have been obliged to run on prospective mortgage customers.
The stress test, which made lenders calculate whether potential borrowers would be able to cope if interest rates climbed by up to 3%, has now been scrapped.
It comes at a time when house prices have reached yet another record high of £283,000 – an increase of 12.8% in a year.
And Bank of England research found that 6% of borrowers, around 30,000 people, took out smaller mortgages than they could of if the affordability test had not been in place.
Despite the change, the loan-to-income “flow limit” rules remain in place limiting the number of mortgages that lenders provide to borrowers at ratios at or greater than 4.5 of their salary.
There has been mixed reaction to the changes since they were confirmed in June following a consultation started at the beginning of the year.
However, the reaction from the mortgage industry has been broadly positive.
Vikki Jefferies, proposition director, PRIMIS, said: “While we understand the importance of protecting borrowers from over-extending themselves, the 3% stress test on top of a lender’s Standard Variable Rate, in fact, acted as a barrier to homeownership for many borrowers.
“Despite its withdrawal, good controls are still in place. Now, the affordability tests which lenders – quite reasonably – need to carry out before approving loans, will be more in line with what borrowers can expect and afford to pay.
“Indeed, with the Help to Buy scheme coming to an end, this decision will also assist first-time buyers, especially in London and the South-East, with stepping onto the housing ladder.”
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