Mortgage borrowers will no longer be subject to affordability stress tests from next month - despite interest rates continuing to soar.
Under the current rules, you must show you can continue to repay your loan even if, hypothetically, your borrowing rate was to increase.
To test this, lenders look at what would happen if your interest rate went up by three percentage points above your loan reversion rate (the rate that applies when your fixed deal ends).
This is one of two mortgage recommendations that were introduced in the wake of the 2007-2008 financial crash, to make sure borrowers didn’t take on more debt than they could afford.
But affordability tests will be scrapped from August 1, the Bank of England has confirmed - despite interest rates rising for the fifth time in a row and hitting 1.25% in June.
The other measure used to decide how much you could borrow is the loan-to-income (LTI) “flow limit” which will remain in place.
The "flow rate" limits the number of mortgages that can be extended to borrowers at LTI ratios at 4.5 times your income or greater.
Mortgage experts say the news will be positive for borrowers - but point out that there are still plenty of obstacles in place for first-time buyers.
For example, the cost of living is making it harder to save up a deposit, and lenders will still use your income to determine how much you can borrow.
Most high street banks will use 4 to 4.5 times your salary as the measure to decide how big of a mortgage they’ll give you.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “Affordability has been a perpetual issue for wannabe homeowners for many years.
“Loosening the mortgage underwriting standards might ease their plight, lenders’ approach to affordability will continue to vary.
“Unwinding these measures amid the cost-of-living crisis run the risk of people biting off more than they chew financially to purchase a property.
“This could be a particular issue among first-time buyers - many of whom have seen their desperate efforts to buy thwarted by runaway house prices and the cost-of-living squeeze on deposit building.”
Gemma Harle, managing director at Quilter Financial Planning, also noted that the LTI “flow limit” on lending “has much greater impact on people's ability to borrow”.
The affordability stress test has caused just 6% of people to take a smaller mortgage than they otherwise might have, according to the Bank of England.
“With interest rates starting to creep up to meet the damaging impact of inflation and soaring energy and food prices, you would think that people’s ability to afford their mortgage should really be under the spotlight now," said Ms Harle.
She added: "First-time buyers also need very sizable deposits and in the current fiscal environment saving this type of money will be very difficult due to increasing rents and the cost of living.
"On top of this, inflation will be eating away at any other savings they have sitting in cash.”
The Financial Conduct Authority still insists on stress tests although at a much lower rate.
Under its rules, lenders must check if borrowers can still afford their loan if their rate increases by one percentage point above the reversion rate.
