Financial Policy Committee confirms withdrawal of affordability stress test Recommendation

The Financial Policy Committee (FPC) confirmed that it will withdraw its affordability stress test Recommendation, according to the Finance & Leasing Association¹. The withdrawal comes into effect from 1 August 2022¹. It follows an FPC consultation held in February, which referenced part of the FPC's previous recommendations¹.

The Recommendation being withdrawn is the FPC's affordability stress test for mortgage lending. The FLA's account does not set out the detailed terms of the Recommendation, the interest rate stress applied under it, or the full list of lenders and products affected, and these have not been reported in the material available¹.

The change sits alongside other regulatory activity in the mortgage market. On 2 August 2022 the Financial Conduct Authority (FCA) published a statement on switching in the mortgage market, in which it suggested that the number of mortgage borrowers not switching their mortgage deal when they could save money has declined significantly since 2016¹. The FCA also published Finalised Guidance (FG23/2) for firms supporting existing mortgage borrowers impacted by the rising cost of living¹.

Why it matters for households

The affordability stress test formed part of the checks lenders applied when assessing whether a borrower could afford a mortgage. Its withdrawal from 1 August 2022 changes the framework lenders work within when deciding how much they are prepared to lend and on what terms. The FLA's account does not state how individual lenders adjusted their own affordability criteria after that date, or what effect the change had on the amounts borrowers could obtain, and this has not been reported¹.

The separate FCA work on switching concerns borrowers who remain on their existing deal rather than moving to another. The FCA suggested that the number of borrowers not switching when they could save money has declined significantly since 2016¹. The FLA's account does not give figures behind that assessment¹.

For households, the practical position is that the rulebook covering mortgage affordability rules changed on a set date, while the checks a lender must still carry out when assessing a loan application continue to apply. The FLA's account does not describe how those remaining checks operate in detail¹.

What happens next

The withdrawal took effect from 1 August 2022¹. The FCA's statement on switching in the mortgage market was published on 2 August 2022¹. The FCA published Finalised Guidance (FG23/2) for firms supporting existing mortgage borrowers impacted by the rising cost of living¹. The FCA also launched a survey sent to a sample of small and medium-sized firms to understand the progress they are making in implementing the Consumer Duty¹.