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Bank of England’s stress rate blocks young people from mortgages they can afford – BSA

  • 13/11/2018
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Bank of England’s stress rate blocks young people from mortgages they can afford – BSA
The Bank of England’s stress rate requirements snatch away the opportunity to buy a home from many young people – even though they could afford it, a report has found.


Industry bodies should work together to challenge whether the policy sits well with “economic reality and social objectives”, according to analysis commissioned by the Building Societies Association (BSA).

As part of the stress test, borrowers must be able to afford mortgage repayments at a rate of three percentage points above reversion rates.

It typically means applicants will not be able to get a get product unless they could afford the mortgage at a rate of between 7-8%.

The report said: “Such housing tools deliver a form of financial stability, but do so by denying many young households the opportunity to buy a property that they are likely to be able to afford.”


More product innovation needed

The study considered where family gifted deposits are the only route on to the housing ladder for today’s first-time buyers.

It was recommended the market widen the role of parental support and intergenerational wealth transfer through products and regulation.

Lenders should look to increase flexibility and innovation of high loan to value (LTV) mortgages, and consider how guarantees, interest-only and retirement interest-only could unlock wealth.

And the government could consider the improved tax incentives for transferring wealth between parents and their children.

Nine out of 10 building societies expected the parental support to play a bigger role in helping first-time buyers over the next five to 10 years.

Report co-author Bob Pannell said: “Our young people face huge challenges in buying their first homes.

“Families instinctively want to help, and it’s the job of lenders, regulators and government to ensure that they have more opportunities to do so in a sustainable way.”

Robin Fieth, BSA chief executive added: “Home ownership remains a fundamental ambition for the majority of people.

“Against the challenging backdrop of high prices, a woefully inadequate supply of homes and a growing intergenerational divide, new ideas and strong debate are essential.

“Family help – the so-called Bank of Mum and Dad – is great for those fortunate enough to have this option, but innovations in underwriting could help all potential first-time buyers.”

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