The central bank also rejected the possibility of increasing the proportion of mortgage lending that lenders are allowed to do at 4.5 times income or more.
Trade body the Intermediary Mortgage Lenders Association (IMLA) has been leading the way in urging the Bank of England (BoE) to loosen the limits it imposes.
Since June 2014, the BoE’s Financial Policy Committee (FPC) has recommended a limit of 15 per cent on the proportion of new mortgages completed at or above 4.5 times a borrower’s income.
The FPC has also advised lenders to stress borrowers’ affordability at three percentage points above the contractual reversion rate.
‘Excessive’ stress tests
IMLA called this “excessive” in its pre-election manifesto, adding that it was one of the key structural issues currently affecting the market.
The trade body has lead calls for regulators to ease the severity of these tests, publishing research and arguing that tighter affordability was restricting first-time buyers from purchasing their own home.
This analysis was rejected by former Financial Conduct Authority (FCA) mortgage manager Lynda Blackwell, who questioned how it had been arrived at.
Benefits substantially outweigh costs
Publishing its annual banking stress test results today, the FPC noted that it would not lessen these recommendations, which “prevent a loosening of underwriting standards that would otherwise lead to an increase in the number of more highly indebted households”.
“These benefits substantially outweigh any macroeconomic costs. These standards therefore maintain financial stability and support economic growth through the cycle,” it said.
“Alternative policies to achieve similar benefits would be much more costly to the wider economy and pose greater risks to the committee’s secondary objective to support the government’s economic policy of strong, sustainable and balanced growth.”
It argued that, among other effects, looser underwriting standards would result in an increase in the number of more highly indebted households and greater economic volatility.
Limited impact on mortgage availability
The report continued: “The FPC therefore judges it is appropriate to maintain both recommendations.
“It views them as structural measures intended to remain in place through cycles in the housing market.
“These measures have had limited effect to date on mortgage availability. Lenders have maintained their underwriting standards in recent years.”
And the regulator concluded: “The FPC’s limit on high loan to income mortgage lending has not been reached. Mortgage approvals have remained steady.
“First-time buyers — who tend to have a greater reliance on borrowing at higher loan to income ratios — now account for a higher share of activity than when the measures were introduced.
“Thus far, the measures have not constrained a material number of prospective home buyers from purchasing a home.”
