Major shake-up to mortgages coming in days – and it could mean you can borrow MORE | The Sun

HOUSE buyers could soon be able to borrow more as a major mortgage rule shake-up kicks in on Monday.

Affordability tests that determine how much you can borrow for a mortgage are being ditched from August 1.

Currently, mortgage providers have to follow rules set by the Bank of England regarding how much homebuyers can borrow.

But these are being chucked out after a consultation by the Bank.

It comes as UK house prices reached a record high of £283,000 – an increased of 12.8% in a year.

And while being able to borrow more may help more people get on to the property ladder, there are fears that it could encourage buyers to take on too much debt.

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Affordability tests were brought in 2014 and aimed to determine what level of monthly mortgage repayment buyers could afford to take on.

Under the rules, providers use "stress tests" to determine if buyers could cope if interest rates increased and their payments went up.

Under the test, buyers have to prove they could still afford repayments if they went up to 3 percentage points higher than their provider's reversion rate (the interest rate you go on to once your fixed deal ends).

A so-called Loan to Income (LTI) "flow limit" will remain in place, however – this lays out that buyers can only borrow a maximum of 4.5 times their income.

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Experts have said the changes could mean that more people find it easier to get on the property ladder, and could potentially take on a bigger mortgage.

But it is important to not overstretch yourself and take on more debt than you can afford.

Laura Suter, head of personal finance at AJ Bell, said: "Just because you can borrow more, it's doesn't always follow that you should.

"Before you take on any debt, you should really consider how much you can afford to repay and if you could cope if your circumstances were to change, for example if you lost your job."

The change comes just days before the Bank of England is expected to hike interest rates again.

Rates have already increased from 0.1% a year ago to 1.25% – the Bank's committee will meet on August 4 to decide whether to raise them further.

Any time rates are hiked, homeowners with a tracker or variable rate mortgage see their monthly repayments rise.

If you're coming to end of a fixed mortgage deal, you'll find that rates are considerably higher than when you last fixed too.

That could put more pressure on household finances in the cost of living crisis, as inflation soars to 9.4%.

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So it's important that homebuyers shop around for the best deal and think carefully about the level of mortgage debt they can comfortably take on.

Laura added: "Mortgages can be complicated at the best of times, so it's worth seeking advice from an independent broker to find the best deal and get guidance on your repayments."

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