Lenders to have greater flexibility offering higher loan to income mortgages

Regulators have set out proposed changes to give mortgage lenders more flexibility making higher loan-to-income (LTI) mortgages.

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are consulting on the proposals.

In July last year, the Bank of England Financial Policy Committee (FPC) recommended that the regulators amend requirements so that individual lenders may choose to have more than 15% of their lending at a high LTI ratio, although a 15% aggregate cap will be kept in place across lenders as a whole.

As an interim measure, firms were told they could apply for individual permission if they wanted to lend at high LTI ratios above 15%, while the regulators’ policy review was ongoing.

The FCA and PRA are proposing amendments following the recommendation.

Under the proposals, lenders would have the additional flexibility to determine their individual high LTI lending strategies, in line with their own risk appetite and business models.

To ensure that the aggregate remains consistent with the 15% limit, there may be instances where the regulators would expect firms to gradually reduce their high LTI flow towards 15%.

The consultation closes on July 1 2026.

Paul Broadhead, head of mortgage and housing policy at the Building Societies Association (BSA) said: “The Building Societies Association welcomes today’s consultation from the Prudential Regulatory Authority and Financial Conduct Authority on the future regime for loan-to-income (LTI) flow limits.

“The regulators’ direction of travel proposes removing the individual restrictions on lenders and using the cap at a market level, as originally intended.

“This ongoing flexibility means building societies and other lenders can continue to support more borrowers who can demonstrate that they can afford a mortgage, while maintaining the overall resilience of the financial system.

“The temporary changes, which were introduced in July last year alongside the Financial Policy Committee’s review of the thresholds at which these limits apply, have enabled building societies to review their mortgage offerings and support more than 1,000 additional first-time buyers a month into homeownership.

“This is a three-month consultation, so we will work through the detail with members and respond in due course.”