First-time buyers could benefit from this week’s announcement that the Bank of England will no longer expect lenders to check whether they can afford mortgage payments at higher interest rates – but experts do not expect this to lead to a free-for-all mortgage.

From August 1, banks and building societies will no longer be required to stress test a borrower’s finances with the Mortgage Market Affordability Test when calculating how much to lend.

The test was to verify that a borrower could still pay their loan at the end of any short-term special offer period if interest rates rose. Lenders calculated this using the “return to” rate – the standard variable rate or trailing rate at which borrowers would switch, plus three percentage points.

For example, a borrower who takes out a two-year fixed rate mortgage at 2.2% with a return rate of 4% would have to demonstrate that they can afford the monthly repayments at a rate of 7%.

The rules were introduced following the financial crash of 2007-2008, which followed years of rampant lending. In the early 2000s, mortgages were available at over 100% of a property’s price, could be taken out easily on an interest-only basis, and were often granted without any proof of income.

However, some within the industry complained that the affordability test was too onerous and prevented some borrowers who could afford a mortgage from getting one.

Removing the test may help potential buyers who have been denied mortgages whose repayments are less than the amount they pay in rent each month. A Bank consultation found that to qualify for home loans, people were taking longer-term mortgages, or at longer-term fixed rates, which meant paying more overall.

“The removal of the mortgage market affordability test is good news, especially for first-time buyers who should be able to borrow more,” said Mark Harris, managing director of mortgage brokerage SPF Private Clients. “Although critics will say that this will only serve to fuel a hot market and the increased availability of credit will again push up property prices.

“However, there will still be restrictions in place and it will not be a free loan for all.”

Neal Hudson, housing market analyst at consultancy BuiltPlace, agrees that removing the three-percentage-point stress test “doesn’t mean mortgages will become free and easy like they were in 2007.”

Banks and building societies are still limited on the amount of loans they can make above 4.5 times salary – this prevents them from taking on a lot of big mortgages and this has had more of an impact on first-time buyers than affordability tests.

The Financial Conduct Authority still insists on stress testing. Under its rules, lenders must check affordability at a percentage point above the rate at which borrowers will switch. “It’s lower, but lenders need to consider market expectations of where rates will be,” Hudson said.

With interest rates on the rise and some suggesting the Bank’s base rate could hit 3% next year, it’s unclear how cautious lenders will be. The Bank says it will be up to individual lenders to decide whether they want to make changes to their lending practices and, if they do, when they will be introduced.

The banks’ trade body, UK Finance, says the rule change will allow “businesses to consider mortgage applications in a more personalized way, while maintaining the underwriting standards required by the FCA and ensuring that loans mortgages are affordable in the long term”. .

Lenders are already allowed to offer fixed rates for at least five years without applying the Bank’s stress tests, but most have done so anyway, which has affected some borrowers’ chances of getting a mortgage. . It is likely that they will drop them now.

However, mortgage rates have risen in recent weeks. These increases, combined with other increases in the cost of living, mean that many experts do not expect the rule change to have much impact on short-term borrowing.

“By the time the rules come into effect, your ability to afford a mortgage will likely be more limited than it is today, given how quickly mortgage rates are moving right now,” Hudson said.

“By the time we get into the fall, if you’re looking to buy, you’ll be facing a higher mortgage rate. The market is doing some of the work to counter the removal of the three percentage point test. »

Dan Wilson Craw, deputy director of campaign group Generation Rent, said: ‘Barely a week goes by without seeing a viral tweet from someone paying £1,000 in rent but being told by the bank that he couldn’t afford a £600 mortgage This is a major part of the housing crisis and is partly caused by this requirement for lenders to test affordability assuming future interest rates will be much higher than they are today.

“Giving lenders more discretion over their tests can help, although they are still required to consider future interest rates. Basically, the problem is that house prices have been allowed to get too expensive, which has led to this painful trade-off between needing big savings or dangerous levels of debt to buy a house.