Opinion  

BoE is being a reckless parent

Simoney Kyriakou

Simoney Kyriakou

There's no reason the Bank of England should ask me anything, but if they had asked my opinion on whether to remove the stress test criteria for mortgages, I might have responded like John McEnroe: "You cannot be serious."

I might have even leaned across the polished mahogany table and grabbed the inquisitor by their lapels, to press home the point. 

At a time of rising consumer indebtedness, removing any affordability criteria is not a move to be applauded. 

It is like standing right on the edge of Beachy Head to allow people to take better selfies.

Affordability criteria were not just there to protect the lenders from having to repossess homes from those who persistently fail to keep up with mortgage repayments.

They were also in place to prevent greedy brokers – sorry, greedy customers – from getting a loan on a property, the value of which was so far beyond their gross annual income that any expectation of keeping up with repayments was a pipe dream at best, a lie at worst.

Even though the latest UK House Price Index from the Office for National Statistics has suggested a slowdown in house price growth is on the cards, with just a 1.1 per cent rise to the end of April, this still means the average house price of £281,000 in April 2022 is £31,000 higher than this time last year.

Tell me, how many clients can boast a £7,000 pay increaseyear on year that will in any way, shape or form help them to achieve the multiples now needed on a home loan?

Sure, there will be many clients with cushty bonus payouts or inheritances that will help them achieve that much-needed deposit for the property of their dreams. 

But the vast majority of Britons are being shellacked by a combination of 9.1 per cent CPI growth, low wage increases, rising energy and fuel bills and the erosion of their 2020 Covid savings. 

As the cash stashed during the pandemic starts getting put to use on those much-needed, long-awaited holidays or put to work to help shore up the monthly household expenditure, how long can the mortgage party continue?

Interest rates are rising, albeit nowhere near as rampantly as they did in the late 1980s. But the effect of rising bank base rates is the cult following of mortgage lenders raising their rates bit by bit. This always, always results in higher-than-hoped for mortgage repayments for people and tightens household purse strings even further. 

The BoE is not being kind to prospective borrowers by removing affordability criteria at a time when incomes are being stretched.

To extend the Beachy Head metaphor, it is acting like an over-indulgent, perfectly attired parent allowing their kid to take their latest iPhone right to the edge of the cliff because Little Payzleigh-Anne deserves to get her perfect TikTok video.