Mortgage affordability testing that is designed to make sure households can keep up repayments at higher interest rates will be scrapped from August.
Borrowers must currently prove that they can continue to repay their loan if their borrowing rate was to increase by three percentage points within the first five years.
But this rule 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% last week.
Two mortgage recommendations were introduced in 2014 in the wake of the 2007-2008 financial crash, to make sure borrowers didn’t take on more debt than they could afford.
The other measure is the loan-to-income (LTI) “flow limit” which will remain in place.
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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 who may be falling short on affordability tests - but said the timing is "potentially bad" as interest rates are predicted to keep creeping up.
It is also feared that the news could push up house prices even further.
Gemma Harle, managing director at Quilter Financial Planning, 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.
"House prices have become further and further out of reach for prospective buyers and this change in the affordability rules could perpetuate unsustainable further growth as it steps up demand in a market already suffering with limited stock."
Chris Sykes at the mortgage broker Private Finance added: “What this will allow is for additional discretions or innovations by lenders.
"Perhaps it could inspire some lower stress rates for those that need it most with low income but with perfect credit and years of experience paying their rent."
The Bank's Financial Policy Committee (FPC) also ruled that the LTI “flow limit” is likely to play a stronger role than the affordability test in protecting against unmanageable debt.
The average mortgage standard variable rate (SVR) reached 4.91% in June, marking the highest level it has recorded since February 2009, according to MoneyFacts.
Mortgage borrowers normally end up on an SVR when their initial deal comes to an end and they don’t lock into another fixed term.
The average overall two-year fixed-rate mortgage stands at 3.25% - the highest since November 2014.
The overall five-year fixed-rate average sits at 3.37% and is the highest on Moneyfacts' records since June 2015.
The average two-year tracker rate is 2.54% - the highest since September 2014. The Moneyfacts averages take all deposit sizes into account.
