The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have unveiled proposed regulatory changes that would grant mortgage lenders increased flexibility in offering higher loan-to-income (LTI) mortgages. This move follows a recommendation from the Bank of England's Financial Policy Committee (FPC) in July 2025, aiming to enhance support for homebuyers while maintaining financial system stability.
Consultation on Lending Flexibility
A new consultation has been launched by the regulators, seeking feedback on amendments that would allow individual lenders to determine their own high LTI lending strategies based on risk appetite and business models. Currently, lenders face a 15% cap on high LTI lending at an individual level, but the proposals suggest removing this restriction while retaining a 15% aggregate cap across the entire market.
Interim Measures and Market Impact
As an interim measure introduced last year, firms have been permitted to apply for individual permissions to exceed the 15% high LTI threshold during the ongoing policy review. The Building Societies Association (BSA) reports that these temporary changes have already enabled building societies to support over 1,000 additional first-time buyers monthly into homeownership through revised mortgage offerings.
Paul Broadhead, head of mortgage and housing policy at the BSA, welcomed the consultation, stating: "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 affordability, while maintaining overall financial system resilience."
Regulatory Framework and Future Steps
Under the proposed framework, lenders would gain additional autonomy in high LTI lending decisions, though regulators may require firms to gradually reduce their high LTI flow toward the 15% aggregate limit if necessary to ensure market consistency. The consultation period will run for three months, closing on July 1, 2026, allowing stakeholders like the BSA to analyze details and formulate responses.
This regulatory shift aims to balance increased lending opportunities with prudent risk management, potentially expanding access to mortgages for creditworthy borrowers. The FPC's original recommendation emphasized maintaining the aggregate cap to prevent systemic risks while offering lenders more operational freedom.
