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Lenders reserve higher loan to income mortgages for wealthy customers – FCA

  • 17/02/2020
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Lenders reserve higher loan to income mortgages for wealthy customers – FCA
Lenders are limiting high loan to income (LTI) mortgages to wealthier borrowers, a study for the Financial Conduct Authority (FCA) found.


Homemovers and joint income applicants are among the customers more likely to be allowed to borrow at higher limits than first-time buyers.

Only 15 per cent of a bank or building society’s new mortgages can be given at LTI of 4.5 or higher, following Prudential Regulation Authority (PRA) rules issued in 2014.

Since the changes, banks are more likely to reserve these loans for borrowers with higher income, research commissioned by the FCA found.

Average loan values for high LTI borrowers have increased at a far faster rate compared to the rest of the market, the FCA research on the effect of the rules showed.

The FCA summarised that “in order to compensate for the cap on the number of high LTI loans, lenders increased the value of such mortgages”.

The study found that gross income for high LTI loans has increased by between four to seven per cent.


Cheaper rates

At the same time, lenders have made high LTI mortgages much cheaper for borrowers.

Interest rates on these mortgages have fallen at a faster rate than the rest of the market, according to the study.

The rules have also meant lenders are offering more mortgages at just below 4.5 times LTI, the FCA found.

However, the overall proportion of high LTI mortgages within the market has remained at around 10 per cent since the policy was introduced.

The rules are applied on a four-quarter rolling basis and only apply to first charge mortgages and cover lenders issuing mortgages worth at least £100m a year.

In recent months, there have been calls to loosen stricter criteria in place since the financial crisis to help first-time buyers on to the property ladders.

However, others within the mortgage industry have said relaxing lending rules is dangerous and risks a return to pre-crisis attitudes.


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