Abbey reassesses affordability as interest rates plummet
Abbey has changed its affordability calculations to take into account falling interest rates.
The lender has informed mortgage brokers that from today, it will no longer use its standard variable rate (SRV), which is currently 5.44%, to assess affordability but a new figure of 7%.
Abbey’s SVR stood at 7.09% in October, prior to November and December’s sharp cuts in the Bank of England’s base rate.
Today’s news that the US Federal Reserve has cut key rates to between zero and 0.25% means that the UK’s base rate is likely to fall well below its current 2% level.
With such dramatic falls, Abbey says it has taken action to avoid exposing customers to unaffordable levels of repayments, if and when interest rates rise.
It will therefore assess affordability on either 7% or the product rate, if this is higher.
The move means that new borrowers will have to prove they can afford their loan at 7%, or above.
Lenders have been under pressure from the Government to reduce rates in line with cuts in the base rate, even if they have a floor or collar in place, as interest rate cuts have been seen as a key means of kick starting the UK property market.
However, mortgage experts expect other lenders to follow Abbey’s lead in reviewing affordability criteria and thereby restricting lending.
In memoriam, is two years to the month since Abbey announced that it would offer mortgages at five times joint income.