New move could help first time buyers
Britain’s first-time buyers may find it a little easier to step onto the property ladder after the Bank of England announced a change to mortgage lending restrictions, allowing banks to issue a higher proportion of loans at riskier income multiples — a move welcomed by intermediaries as both measured and timely.
The central bank’s Financial Policy Committee (FPC) has asked regulators to revise how its loan-to-income (LTI) flow limit is implemented, enabling individual lenders to exceed the current 15% cap on high-LTI lending, provided that the market-wide limit remains intact. The definition of high LTI remains any mortgage exceeding 4.5 times a borrower’s income.
While the FPC will retain its aggregate cap to mitigate systemic risk, the recalibration allows individual firms to serve more creditworthy applicants — particularly first-time buyers — who might otherwise be excluded due to rigid thresholds. The Prudential Regulation Authority and Financial Conduct Authority will now coordinate the technical implementation of the updated approach.
The LTI ceiling was introduced in 2014 as a macroprudential safeguard to curtail excessive household debt during surges in house prices. Since then, lenders have generally kept well within the 15% threshold, often by leaving internal buffers to avoid breaches.
But recent affordability dynamics, including adjusted stress-testing methodologies and changing economic conditions, have reignited debate over whether the constraint has become overly restrictive, particularly in high-cost areas like London.
The Bank of England acknowledged that securing a mortgage often requires not only a sizeable deposit but also stretching one’s income to the limits of conventional lending criteria. According to UK Finance, a typical London first-time buyer borrowing below the 4.5x income threshold now needs a deposit exceeding 2.5 times their annual household income — a steep rise from 1.9 times prior to the rules coming into force.
Andrew Montlake, chief executive of Coreco mortgage brokers, told The Independent that the BoE’s announcement was “a welcome and pragmatic move that reflects the need to adapt to today’s housing and income realities,” adding that it was “not a return to reckless lending, but a recognition that sensible flexibility can make a real difference.”
The LTI policy update comes alongside a broader re-evaluation of the regulatory framework underpinning mortgage lending. The central bank confirmed this week that it will conduct its first comprehensive review of capital adequacy rules since 2019. The outcome, expected in November, will inform how much capital banks must retain to weather economic stress.
Sarah Breeden, Deputy Governor for Financial Stability, said the review would allow the FPC to incorporate lessons from recent shocks, including the COVID-19 pandemic. She noted that certain buffers — such as the countercyclical capital buffer — had proved more effective than others in sustaining credit supply during downturns.
While reaffirming the UK’s adoption of the Basel 3.1 framework, set to take effect in 2027, regulators were at pains to distinguish the LTI reforms from broader capital rule changes. Sam Woods, chief executive of the PRA, said the FPC had “no intention” of reopening discussions on Basel 3.1 itself, even as industry pressure to moderate implementation intensifies.
What It Means for Mortgage Lenders
For lenders, the loosening of LTI thresholds could recalibrate product offerings and borrower assessment protocols. Those with greater appetite for risk may now expand their high-LTI lending beyond 15%, though the broader system will still be held to that market-wide ceiling.
The share of lending at 4.5x income or above has already crept upward, reaching 9.7% in Q1 2025. That figure is expected to rise further as lenders adapt to the FCA’s March 2025 reforms, which permitted more flexible affordability testing under revised stress rates.
The FPC's stance signals a cautious evolution of mortgage policy rather than a wholesale deregulation. In an environment of moderate economic recovery and lingering housing affordability concerns, the move strikes a delicate balance between prudence and pragmatism.
For mortgage professionals, the key will lie in how quickly and responsibly lenders respond to the new leeway — and whether it can meaningfully translate into expanded access for those still locked out of homeownership.
