The Financial Policy Committee's Recommendation on Loan to Income Ratios in Mortgage Lending: General Guidance (Financial Conduct Authority)

Summary

• The guidance sets out expectations to implement the Financial Policy Committee's recommendation to maintain an aggregate high LTI flow limit of 15%.p.2
• The de minimis threshold applies to firms entering into regulated mortgage contracts with total credit of less than £150 million during both of the two most recent consecutive sets of four quarters.p.3
• Firms are also under the de minimis threshold if they enter into fewer than 300 regulated mortgage contracts across both consecutive sets of four quarters.p.3
• Firms should not operate on the basis that they can permanently maintain an individual high LTI flow of more than 15%.p.5

Key insights

1. The guidance updates implementation of the FPC recommendation to allow individual lenders flexibility while keeping aggregate market high LTI flow consistent with 15%.p.2
2. Exclusions from the high LTI guidance include further advances, lifetime mortgages, contracts that are not a first charge legal mortgage, re-mortgages with no change to principal, and retirement interest-only mortgages.p.2
3. The de minimis threshold exempts smaller mortgage lenders providing under £150 million in credit or under 300 contracts over two consecutive four-quarter periods.p.3
4. If the FCA and PRA determine aggregate flow exceeds 15%, the FCA will publish temporary supplemental guidance instructing firms above 15% to gradually reduce high LTI lending.p.5
5. Adjustments expected under temporary guidance apply solely to future lending decisions and do not require withdrawing approved mortgage offers.p.6