TSLE2019: LTI is an ‘appalling’ and ‘barbaric way’ to regulate lending – McDowell

  • 14/02/2019
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TSLE2019: LTI is an ‘appalling’ and ‘barbaric way’ to regulate lending – McDowell
The use of loan to income (LTI) ratios to monitor lending levels is “completely out of date” and a “blunt instrument”, The Specialist Lending Event 2019 has heard.


All participants on the lender panel acknowledged that Prudential Regulation Authority (PRA) limits of a maximum of 15% of lending per quarter at above 4.5 times income restricted how much they could do.

However, HTB managing director of specialist mortgages Charles McDowell highlighted the flaws he saw in the use of LTI to regulate the market.

“We don’t do residential lending at HTB so I can take my professional hat off and give my real personal opinion,” he said.

“I think LTI is an appalling metric. It is an old metric, it is completely out of date, we have so much moved on from this metric.

“We are now firmly within the Mortgage Market Review (MMR) and affordability – that is the real driver for lending, it shouldn’t be LTI.

“I think it’s a barbaric way of looking at lending, particularly when we’re moving in to a data rich environment around banking and really being able to understand how people manage their finances. “Why are we using such a blunt instrument?” he added.



Cover close deals

Vida Homeloans director of sales Louisa Sedgwick highlighted that given the differences in size of lending power, specialist lenders had to use their resources in a more targeted way.

“What you find is the mainstream lenders are the ones going out and stretching the LTIs because they can,” she said.

“So 15% of Halifax’s book is a damn site bigger than 15% of Vida Homeloans’ book – so you can see what you’re left to play with is fairly restrictive and I think that’s probably why in the specialist arena you don’t tend to see much movement in high LTI.”

“We tend to use it to cover a deal – so for example if we’ve got something so close like 4.55 times and it makes sense to lend to that customer all day long, then we’ll do it and that would form part of our 15%.

“But unless you are a big lender that’s got a very big balance sheet to carry that 4.5 times lending, it is not really a great deal of wriggle room,” she added.


Other sources of income

The panel also noted that specialist lenders had different methods to help improve the LTI ratios for clients.

Shawbrook Bank sales and distribution director for residential mortgages David Robinson noted that affordability became an issue in different parts of the country.

“LTI isn’t always the most important thing in the specialist market,” he said.

“It’s the other sources of income, how the lender treats that, what the credit file looks like and where you can go for those options.

“Yes affordability is important and LTI can become important, but there are many other factors we need to cover off before then.”

One Savings Bank sales director Adrian Moloney added: “The key bit from a specialist point of view is how we can assist it – what is allowable income.

“Underwriters can look into different elements of the accounts and how bonuses have been paid and so on.”


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