The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) confirmed that lenders will be allowed to surpass the 15% LTI limit with immediate effect by making an application to do so.
Yesterday, the regulators said that the 15% lending flow limit will be raised from applying to lenders who complete residential mortgage lending below the £100m threshold set in 2014 to £150m from 11 July.
Kate Davies, chief executive of Intermediary Mortgage Lenders Association (IMLA), said that the trade body believes that raising – or abolishing – the LTI flow cap is the “surest way to expand lending for first-time buyers, single applicants and households on moderate incomes”.
“Simply moving the trigger point leaves the core restriction untouched: lenders writing under £150m a year hold only a sliver of market share, so the adjustment would help very few borrowers. The real barrier is the 15% cap itself, which continues to deny affordable finance to thousands of aspiring homeowners.
“The ‘modification by consent’ from the PRA – allowing lenders, once approved, to set aside the 15% cap for the next 12 months – signals that the regulator is ready to rethink the LTI flow rules. If it is serious about broadening access to homeownership, this temporary reprieve should be converted into a bold, permanent reform,” she added.
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Paul Broadhead, head of mortgages and housing at the Building Societies Association (BSA), said that it welcomed the news that the PRA was reviewing the loan to income (LTI) flow limit rule.
“This is a step in the right direction, and will enable more first-time buyers who can demonstrate affordability to access homeownership. Individual firms, including building societies, will have immediate flexibility to lend to more borrowers without increasing the overall risks in the financial system.
“We have been calling for an uplift in the Financial Policy Committee LTI flow limits for some time, and it is likely that today’s announcement will deliver meaningful benefits to aspiring homeowners and in turn, help stimulate economic growth.
“We look forward to continuing to work with regulators and government to review mortgage regulation to ensure that we have a market that is innovative, fit for the future and maintains consumer protection at its heart.”
Building society representatives had gone to Downing Street in June to request a higher LTI cap, with some building society executives saying that it disproportionately impacted them.
Nationwide has welcomed the announcement, adding that it would be applying to increase its lending limit.
According to UK Finance figures, Nationwide is the third largest lender in the UK by gross lending.
The firm said the additional flexibility could allow it to lend an estimated 10,000 more first-time buyers a year.
Dame Debbie Crosbie, Nationwide’s CEO, said: “This is good news for first-time buyers, and is also a boost to the UK’s housebuilding ambition and the wider economy. We have long argued that relaxing this regulatory restriction will provide confidence to both lenders and housebuilders without materially increasing risks.
“It will help people who struggle to get on the property ladder because high rents and living costs have made saving for a deposit and meeting mortgage affordability tests extremely challenging.
“This is a welcome move and a strong signal that government and regulators are working together to boost economic growth and competitiveness.”
Charles Roe, director of mortgages at UK Finance, also welcomed the news “which follows several months of constructive engagement with the PRA and FPC discussing constraints imposed by the current framework”.
He added: “Coupled with changes the FCA is making to its mortgage affordability rules, this announcement should benefit first-time buyers as well as those looking to move up the housing ladder.
“Lenders will always lend responsibly and this is a move that could increase mortgage lending and stimulate economic growth.”
