A proposal to remove the affordability test when assessing mortgage applications is now being consulted on.

The idea was first floated in mid-December last year, when the Bank of England’s Financial Policy Committee (FPC) stated that it had reviewed two recommendations introduced in 2014.

These were the loan-to-income (LTI) flow limit – i.e. the number of mortgages that can be lent out at an LTI ratio of more than 4.5 times income, and the affordability test, which sets the stress interest rate.

In its review, the FPC concluded that the affordability test was no longer required because, “the LTI flow limit, without the affordability test recommendation, but alongside the wider assessment of affordability required by the FCA’s Mortgage Conduct of Business (MCOB) framework, ought to deliver an appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way.”

The FPC is therefore seeking views on removing the affordability test recommendation while retaining the LTI flow limit.

It is asking three questions:

• What impact is the affordability test recommendation currently having on the mortgage market?
• How would lenders and the mortgage market respond if the recommendation were withdrawn?
• What effect withdrawing the recommendation may have on the housing market as a whole and on particular segments of the market?

The consultation finishes on 6 May 2022.