PRA adjusts LTI flow limit to boost FTB lending

The Prudential Regulation Authority (PRA) has introduced adjustments to the loan-to-income (LTI) flow limit rule. 

It now allows lenders to disapply the 15% cap on new residential mortgage loans with an LTI ratio of 4.5 or more, following a recommendation from the Financial Policy Committee (FPC).

Currently, lenders could only issue up to 15% of their new residential mortgages at higher LTIs each year. 

The FPC recommended giving individual lenders more flexibility, as long as the overall limit stays at 15% across the market. 

The PRA is now offering a modification by consent, which means firms can opt in and lend more at higher LTIs straight away, but must report details of any big changes to their business plan and keep the PRA updated each month on their high LTI lending.

This modification runs until the end of June 2026, or until the PRA changes the original rule. 

The PRA said it will consult on permanent changes to the LTI flow limit in due course and may revoke or revise the temporary modification if necessary.

Paul Broadhead, head of mortgages and housing at the BSA, said: “The Building Societies Association (BSA) welcomes today’s news that following the FPC’s recommendation, the PRA is reviewing the Loan to Income (LTI) flow limit rule. 

“This is a step in the right direction, and will enable more first-time buyers that 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.”

Broadhead added: “We have been calling for an uplift in the FPC 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.”

Dame Debbie Crosbie, CEO at Nationwide, 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 the Government and regulators are working together to boost economic growth and competitiveness.”

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