Home buyers are set to face stricter borrowing tests when applying for a mortgage, following the introduction by the Bank of England of tighter restrictions on lenders. Lenders will now be required to make sure that borrowers can manage repayments at an interest rate of around 7%, which in many cases is far higher than the rate borrowers are currently likely to be charged.
The Bank of England has made this move due to its concerns that families have been encouraged by record low interest rates to increase their borrowing. Borrowers will now need to show that they have enough slack in their household budget to cope with making larger monthly repayments if interest rates start to rise.
However, as many lenders have been operating under strict mortgage criteria for some years now, the general view is that this may not be the stumbling block to new mortgages it might appear. The Bank has estimated that if these rules had been in operation in 2016, it would only have reduced mortgage approvals by less than 0.5%.