Around 57% of brokers say that the removal of the affordability stress test has had no impact on the mortgage market, a poll has found.
According to a Mortgage Solutions poll that asked whether the removal of the affordability stress test around two years ago had had an impact on the mortgage market, around 8% said that it has had a negative impact.
Approximately 34% say that it has had a positive impact on the mortgage market.
In 2022, the Financial Policy Committee (FPC) announced that it would withdraw the mortgage affordability stress test, which was introduced in 2014 and requires lenders to assess a borrower’s future ability to repay a mortgage.
The stress test is calculated by seeing whether a borrower could repay a mortgage if the mortgage rate was 3% above a lender’s reversion rate.
John Baguley, principal of mortgage policy at UK Finance, said that the poll results are a “useful indication of where brokers sit on this issue but are not that surprising”.
“Although we have seen the Prudential Regulatory Authority’s [PRA’s] affordability test removed, Financial Conduct Authority [FCA] rules remain and lenders have a duty to lend responsibly – so the dial has not moved significantly.
“Boosting affordability will ultimately need to balance interventions like shared ownership and rent to buy, as well as increasing the supply of genuinely affordable homes,” he added.
Will Rhind, vice president of mortgage advice and growth at Habito, agreed that the results were not surprising.
“The mortgage market in 2022 was markedly different, with the base rate fluctuating between 0.25% and 3.25%. Lenders’ standard variable rates [SVRs] were also significantly lower than they are today.
“Although these measures may have provided some assistance, the impact has not been noticeable. Customers (with the same income and expenditure) can borrow less today than in 2022, due to the way lenders assess affordability and the loan-to-income [LTI] caps in place,” he noted.
‘Practical impact’ of removal ‘minimal’
Charlotte Nixon, proposition and distribution director for Quilter Financial Planning’s Mortgage Network, said that the results “suggest that while the scrapping of the stress test could theoretically widen access to mortgages, the practical impact has been minimal”.
“This is likely because other stringent criteria, such as the LTI ratio, remain firmly in place. These criteria continue to play a significant role in determining mortgage eligibility, effectively overshadowing the removal of the stress test,” she said.
Nixon noted that the results were “not entirely unexpected”, looking at the broader context of the housing market.
“The ability to afford a deposit remains a significant hurdle for many potential homebuyers, often more so than passing an affordability test. Additionally, lenders are still applying their own risk assessments, meaning that the overall lending landscape has not shifted dramatically despite the regulatory change,” she explained.
Nixon said that to “genuinely boost affordability”, a “multi-pronged approach is necessary”. This included growing housing supply, especially affordable housing, which would then stabilise or reduce house prices, therefore improving accessibility.
“A well-thought-out government-backed programme similar to Help to Buy might also boost affordability, but we need to be mindful that these types of measures have had unintended consequences in the past and not all buyers have had good experiences, so any future plan should be consulted on with the industry.
“Keeping interest rates at a manageable and stable level will also help to give borrowers a better chance of getting on the housing ladder, but this is dictated by the macroeconomic conditions. Finally, improving financial literacy from a young age could help to ensure that people have the tools necessary to save for the considerable deposit required to buy in this day and age,” she noted.
Lender affordability stress tests can be ‘smoke and mirrors’
Chris Sykes, technical director at Private Finance, said that there could be many factors influencing the results, noting the lenders’ affordability calculators are “very smoke and mirrors”.
“You punch in numbers and you get a result, but data on how they stress test their mortgages, what costs are being plugged in and how things are worked out are not often shared,” he said.
Sykes said that some lenders stress differently for first-time buyers as they assume that their income trajectory is on the up and need more assistance on the ladder.
He noted that a lot more lenders have adapted five-year fixed rate stress test calculations, meaning that lenders will often give more on this term versus a two-year fixed rate, and these differences could be “significant”.
Sykes noted that those respondents who say the affordability stress test removal has not had an impact are coming from the position of their clients being able to borrow fewer than two years ago due to the cost of living and higher mortgage rates, but the removal has definitely had an impact.
“Those saying it is having a negative impact are probably coming from the angle they do not feel it is responsible lending that lenders are doing currently, but lenders are still stressing mortgages, and this has only affected five-year fixed rates for the most part, in which time, a lot can change,” he said.
Stephanie Daley, director of partnerships at Alexander Hall, said that the affordability stress test removal has had a positive impact on the market, but as SVRs have risen, the “impact has not been felt as much as some may have expected”.
“I’m surprised to see a majority saying ‘no, it has not had an impact’. Perhaps if SVRs hadn’t increased at such a rate since the affordability rule change, we would see more people saying ‘yes, it has made a difference’.
“Lenders are, of course, still lending within the guidance of responsible lending, and the LTI flow limit remains. It has been good to see more recently lenders taking advantage of the change of stress tests and allowing higher lending on a five year, however given that we expect to see rates reduce over the next period of time, we may be faced with a cohort of borrowers who had to secure a five-year fixed rate in order to get the lending being penalised by being stuck on higher interest products,” she said.
Anna is currently the deputy editor for Mortgage Solutions and editor for Specialist Lending Solutions. She has worked as a journalist since 2019, having secured her Gold Standard NCTJ diploma from News Associates in a fast-track six-month course.
She started her career as a report at specialist publication The Insurance Insider covering a wide range of areas before joining Mortgage Solutions and Specialist Lending Solutions in 2021.
In her role, she helps put together and structure the news agenda for the day and writes up press releases, reports, interviews, analyses and exclusives across both titles. She also commissions blogs for Specialist Lending Solutions and hosts online masterclasses and in-person events across the business.
She has been shortlisted for three journalism awards, which include BIBA Journalist and Media Awards Scoop of Year Award in 2020, Headline Money Mortgage Journalist of the Year Award (B2B) in 2022 and 2023.
Prior to being a journalist, Anna worked in ecommerce across Snow + Rock, Cycle Surgery and Runners Need websites, and before that worked at specialist financial PR firm Rostrum.
In her spare time, Anna enjoys reading, seeing live music, and cooking for friends and family. When she gets a chance, she also enjoys hiking, skiing and indoor rock climbing.
