Financial Stability Report

Published: 29th June 2017

The Bank of England published its Financial Stability report this week.  New rules on mortgage affordability could force borrowers to prove they are still able to afford mortgage repayment at almost double their normal monthly payments.

Essentially the Bank of England does not want lenders and borrowers to get into a false sense of security with ultra-low interest rates.  The report points out that mortgage debt has historically been a source of risk in terms of financial stability within the UK economy.

The latest changes to the rules force lenders to apply an interest rate stress test at 3 percent above the lenders Standard Variable Rate (or reversion rate).  Some Lenders Standard Variable rates are as high as 5.75% percent which would result in the lender needing to ensure affordability at an interest rate of 8.75%. This could potentially result in it making it harder to get a mortgage.

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