Statement
Following the FPC’s recommendation, the Prudential Regulation Authority (PRA) is reviewing the loan to income (LTI) ratio requirements and is offering a modification by consent to disapply the relevant Part of the PRA Rulebook while the review is ongoing.
The current rule 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 annum.
The FPC recommended the PRA and the Financial Conduct Authority (FCA) amend implementation of its LTI flow limit to allow individual lenders to increase their share of lending at high LTIs while aiming to ensure the aggregate flow remained consistent with the limit of 15%. The FPC recognised that, in doing so, such high LTI lending by individual lenders could exceed 15% of their total number of new residential mortgages while the aggregate flow remained consistent with the 15% limit. In light of this, the PRA is reviewing the LTI ratio requirements.
While this review is ongoing the PRA is offering a modification by consent that will allow lenders to disapply the 15% limit with immediate effect. FCA solo-regulated lenders should refer to the FCA’s statement, published in parallel with the PRA modification.
Firms that consent to this modification will be required to:
- provide details (such as relevant management information) of material changes to their business plan (including the percentage share of mortgages at high LTIs it expects to approve in each of the four quarters following the date this modification takes effect), risk appetite, and risk management framework (including risk limits in relation to high LTI lending) in respect of any planned increase in the share of lending at high LTIs, within one month of taking up the modification; and
- notify the PRA on a monthly basis of its volume and share of high LTI mortgage approvals and completions within the previous month. A firm’s first submission must include information in relation to the preceding 3 months.
Once applied for, the modification will cease to have effect at the end of 30 June 2026 or, if earlier, the date the original rule is modified or ceases to apply (which may be as a result of the PRA’s review).
The PRA will consult in due course on changes to the LTI flow limit requirement. The availability of this modification does not prejudge the outcome of the consultation.
The PRA may revoke the modification or make a revised one available at any time. In deciding whether to revoke or revise the modification, we will consider whether the conditions in section 138A(4) of FSMA 2000 are no longer satisfied and whether the waiver or modification is otherwise no longer appropriate. For example, in line with the FPC’s recommendation, the PRA may revoke or revise the modification if the share of new mortgage lending at high LTIs exceeds 15% in aggregate.
The PRA will give firms reasonable notice to comply with any updated requirements.
Firms that wish to take advantage of this modification should consider the terms of the direction. If they want to take up the modification, they should send a short email to PRA-Waivers@bankofengland.co.uk, copying their usual supervision contact, confirming they are requesting this modification. The email should include the Firm name and Firm Reference Number. No additional supporting information is needed.
The PRA will confirm in writing whether the request has been granted and, if granted, it will publish the approved modification direction in respect of each firm on the Financial Services Register.