Both the PRA and the FCA have published their final rules and guidance concerning their approach to implementing the Financial Policy Committee’s (FPC) recommendation that both regulators take steps to ensure that mortgage lenders constrain the proportion of new lending at loan to income ratios (LTI) at or above 4.5 to no more than 15% of the total number of new mortgage loans. This recommendation applies to all lenders which extend residential mortgage lending in excess of £100 million per annum.
The PRA has published Policy Statement 9/14: Implementing the Financial Policy Committee’s recommendation on loan to income ratios in mortgage lending. The FCA has published Finalised Guidance 14/8: Guidance on the Financial Policy Committee’s recommendation on loan to income ratios in mortgage lending.
Both the PRA Policy Statement and the FCA Finalised Guidance set out:
- how the regulator expects firms to act in light of the FPC’s recommendation;
- how the regulator will determine which firms should apply the LTI limit when the rules and guidance come into effect;
- how the regulator will determine which firms should apply the LTI limit on an on-going basis; and
- how the regulator will monitor if a firm’s mortgage lending is consistent with its expectations on the LTI limit and what supervisory action may be taken.