The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have announced changes to the loan-to-income (LTI) flow limit for mortgage lenders, intended to reduce regulatory pressure on smaller financial institutions.
Starting Friday, 11 July, only mortgage lenders issuing over £150m in residential mortgage loans annually will be subject to the LTI flow cap. This marks an increase from the existing £100m threshold, which has been in place since 2014. Under the LTI rule, lenders are restricted from issuing more than 15% of new residential mortgages with an LTI ratio of 4.5 or higher.
The change follows a recommendation made in November last year by the Bank of England’s Financial Policy Committee (FPC), which highlighted the act that the £100m threshold had not kept pace with the UK’s economic growth. Regulators said the adjustment would reduce unintended constraints on small lenders.
A joint policy statement from the PRA and FCA said: “The updated recommendation addresses the impact of inadvertent regulatory tightening due to growth in the UK economy since the threshold was first implemented. It increases the value of residential mortgage lending that small lenders can extend before becoming subject to the LTI flow limit, thereby contributing to the regulators’ secondary objectives on competition, and therefore competitiveness and growth.”
The number of lenders exempt from the LTI flow cap is expected to increase from around 70 to approximately 80. This change will provide greater operational flexibility to smaller and specialist lenders that were previously just above the former threshold.
Rachel Springall, finance commentator at Moneyfacts, said: This is a step in the right direction to give smaller lenders more scope to support borrowers, but for some it might not be as much relaxation as they were hoping.”
“Just last month, the CEOs from Yorkshire Building Society, Nationwide Building Society and Skipton Building Society collectively called for the LTI limit to be raised to 20% from 15% to allow them to lend to more potential homeowners,” she added. “This was sent as a letter to the Treasury Committee and reaffirmed the point that building societies are responsible for 35% of first-time buyer lending.”
