What effect will 'stress tests' have on mortgage applications?

New tests aim to check if borrowers could afford their repayments after an interest rate rise

Intermediary mortgage lenders are confident that new affordability checks resulting from the Mortgage Market Review (MMR) will not significantly reduce the number of people who successfully apply for a mortgage.

Research by IMLA (the Intermediary Mortgage Lenders Association) found only 7 per cent of intermediary lenders expect significantly more people will be turned down for a mortgage because of new stress tests which take effect in April 2014. These tests will examine whether borrowers could afford their repayments in the event of interest rates rising.

The figures show that almost three quarters of lenders are confident that affordability checks will not affect borrowers in large numbers, with 20 per cent unsure.

Overall responsibility for affordability checks will officially pass from brokers to lenders when the MMR takes effect in April 2014. 

Peter Williams, Executive Director of IMLA, said: "The MMR rules on affordability are built on common sense and are not too far removed from how many lenders already approach the issue. Recent experience has shown how important it is to ensure that mortgage borrowers can reasonably manage their commitments, not just now but in the future.

"We are in unfamiliar territory when it comes to current interest rates, so we have to be pragmatic and anticipate the likelihood of change. Falling numbers of arrears and repossessions in recent years show a responsible approach to mortgage approvals, and lenders are working hard to ensure their existing tests meet the full MMR requirements without unfairly disadvantaging consumers."

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