In light of recommendations made by the Financial Policy Committee (FPC) to review the 15% flow limit of high LTI mortgages, the Prudential Regulation Authority (PRA) will offer modification by consent to disapply this rule as it reviews the policy.
The current rule states that the number of residential mortgages lent at LTI ratios of 4.5 or higher cannot make up more than 15% of a lender’s book each year.
This currently applies to lenders that complete more than £100m of residential mortgages over four rolling quarters, but from 11 July, this threshold will be raised to £150m.
The FPC has recommended that the PRA and Financial Conduct Authority (FCA) allow lenders to issue high LTI mortgages at more than 15% of their annual business, while maintaining the aggregate or overall flow limit across the sector.
FCA-solo regulated firms must refer to the regulator’s note, which says lenders can “contact the FCA to discuss the possibility of individual guidance in respect of the LTI flow limit, where appropriate”.
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Lenders that consent to the modification must give details of material changes to their business plan, risk appetite, and risk appetite framework relating to the planned increase in the share of lending at high LTIs within one month of taking up the modification.
Lenders must also notify the PRA every month of their volume and share of high LTI mortgage approvals and completions from the previous month. The first submission must relate to the previous three months.
Once applied for, the modification will cease to apply at the end of 30 June 2026 or, if earlier, the date the original rule is modified or ceases to apply, which may be as a result of the PRA’s review.
The PRA will consult on changes to the LTI flow limit and can revoke or revise the modification at any time, such as if the share of new mortgage lending at high LTIs exceeds 15% in aggregate.
