FPC withdraws mortgage affordability test

FPC has confirmed that it will withdraw its Recommendation on mortgage affordability with effect from 1 August. The current test specifies a stress interest rate for lenders when assessing borrowers’ ability to repay a mortgage, and was introduced, alongside a Recommendation on the loan to income flow limit, to control mortgage underwriting standards and to try to guard against an increase in household indebtedness.

FPC now thinks the LTI flow limit has a stronger role to play in meeting its aims than the mortgage affordability test. It feels, therefore, that the LTI Recommendation, alongside lenders’ obligations on affordability tests under MCOB and responsible lending practices, will deliver the appropriate level of resilience in a better and more proportionate way.

Emma Radmore