Move aims to ease pressure on smaller lenders
The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have confirmed changes in the loan-to-income (LTI) flow limit threshold for mortgage lenders, a move aimed at easing regulatory pressure on smaller financial institutions.
From July 11, only lenders issuing more than £150 million in residential mortgage loans annually will be subject to the LTI flow cap. The current threshold, set in 2014, stands at £100 million. The LTI rule limits lenders from issuing more than 15% of new residential mortgages with an LTI ratio of 4.5 or above.
The change follows a recommendation made in November 2024 by the Bank of England’s Financial Policy Committee (FPC), which noted that the £100 million threshold had not kept pace with the UK’s economic growth. Regulators said the adjustment would reduce unintended constraints on small lenders.
According to the joint policy statement from the PRA and FCA, “The updated recommendation addresses the impact of inadvertent regulatory tightening due to growth in the UK economy since the threshold was first implemented. It increases the value of residential mortgage lending that small lenders can extend before becoming subject to the LTI flow limit, thereby contributing to the regulators’ secondary objectives on competition, and therefore competitiveness and growth.”
The number of lenders exempt from the LTI flow limit is expected to rise from around 70 to approximately 80. The change is likely to offer greater operational flexibility to smaller and specialist lenders that previously fell just above the earlier limit.
Three major building societies — Yorkshire, Nationwide, and Skipton — recently urged the Treasury Committee to raise the LTI flow cap from 15% to 20%. They argued such a move would help them serve more first-time buyers, a segment where mutuals already account for 35% of lending.
“This is a step in the right direction to give smaller lenders more scope to support borrowers,” commented Rachel Springall, finance expert at Moneyfacts. “But for some, it might not be as much relaxation as they were hoping.
“This change has been carefully considered in line with ‘original risk appetite’. There have been no other changes stipulated at this time, which might disappoint those who were hoping for a change to the loan-to-income (LTI) flow limit.”
For Colin Bell, chief operating officer of digital mortgage lender Perenna, the FCA and PRA’s decision to raise the LTI flow limit threshold will not be seen as a game-changer by the mortgage market.
“Raising the threshold will provide some welcome, if limited, comfort to both frustrated first-time buyers and smaller-scale or early-stage challenger lenders,” he said. “In essence, it will provide some additional capacity for competition and innovation in the high LTI marketplace.
“But it is unlikely to make a significant dent in the backlog of creditworthy buyers unable to secure sufficient finance to purchase their own home. We would have liked to see the regulators go further and take bolder action to increase both the availability of high LTI loans to buyers and remove the LTI cap on long-term fixed rate products.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
