The PRA and FCA have confirmed changes to the loan-to-income (LTI) flow limit for mortgage lenders.
The LTI flow limit ensures that mortgage lenders limit the number of new residential mortgage loans made with an LTI ratio at, or greater than, 4.5 to no more than 15% of their total number of new mortgage loans per year.
In November 2024, the Financial Policy Committee (FPC) recommended to the PRA and FCA that the LTI flow limit only apply to lenders that extend residential mortgages with a total value of above £150 million a year, rather than the £100 million threshold set in 2014.
The regulators have now confirmed that the change will commence from 11th July 2025.
The proposals will result in the LTI flow limit applying to fewer institutions, particularly small, niche lenders. Around 70 lenders are currently exempt from the LTI flow limit; increasing the threshold to £150 million will result in circa 80 lenders benefiting from the exemption.
In a joint statement, the regulators said the update "addresses the impact of inadvertent regulatory tightening due to growth in the UK economy since the threshold was first implemented", increasing the value of residential mortgage lending that small lenders can extend before becoming subject to the LTI flow limit.
Responses to the consultation paper
All respondents to the FCA's April consultation paper were supportive of increasing the de minimis threshold, in some cases highlighting the benefits it will provide to smaller lenders and in promoting growth and innovation.
Three respondents suggested that the LTI de minimis threshold should be set at a higher level than proposed. Two of those respondents proposed specific thresholds, of £200 million and £250 million a year respectively. All three of these respondents argued that a higher threshold would enhance competition among smaller, niche lenders and support growth. They further argued that such lenders have a particular role in supporting lending to first-time buyers. One respondent argued that some small and mid-sized lenders above the threshold would be disproportionately affected by the regulatory burden.
Having considered this response, the regulators decided not to make changes to level of the de minimis threshold.
They stated: "The value of the proposed threshold was recommended by the Financial Policy Committee (FPC) and the regulators do not propose to implement a different threshold value. The FPC proposed the increase in the de minimis threshold to £150 million to maintain its original risk appetite and ensure that the policy operates in accordance with the original calibration."
The FPC has reaffirmed its judgement that the "LTI flow limit has not significantly reduced mortgage access for first-time buyers".
Rachel Springall, finance expert at Moneyfactscompare, commented: “This is a step in the right direction to give smaller lenders more scope to support borrowers, but for some it might not be as much relaxation as they were hoping. The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have confirmed the threshold will rise to £150 million a year, up from £100m which was set back in 2014. This change has been carefully considered in line with ‘original risk appetite’. The changes take effect from 11 July 2025, and are expected to benefit around 80 lenders. 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.
“Just last month, the CEOs from Yorkshire Building Society, Nationwide Building Society and Skipton Building Society collectively called for the LTI limit to be raised to 20% from 15% to allow them to lend to more potential homeowners. This was sent as a letter to the Treasury Committee and reaffirmed the point that building societies are responsible for 35% of first-time buyer lending. Mutuals have already pioneered innovative products to support first-time buyers, so it will be interesting to see how the latest changes will impact the mortgage market overall.”
