PRA to review Loan to Income flow limit rule and offers interim modification by consent

The Prudential Regulation Authority (PRA) has announced it will be reviewing the Loan to Income (LTI) flow limit requirements, following the Financial Policy Committee's (FPC) recommendation, as stated in its July financial stability report. In line with this, the PRA is offering an interim modification by consent, allowing lenders to temporarily disapply the current rule that limits new residential mortgage loans with an LTI ratio of 4.5 or above to 15% of total new lending. Firms opting into the modification must: (i) within one month, submit detailed information on their business plan (including the percentage share of high LTI mortgages expected to be approved in each of the four quarters), risk appetite and risk management frameworks which include details of any planned increase in high LTI lending; and (ii) on a monthly basis, notify the PRA on the volume and share of high LTI mortgage approvals and completions within the previous month, with the first submission covering the preceding three months. Once granted, the modification will remain effective until 30 June 2026, or earlier if the rule is amended or withdrawn as a result of the PRA's review.

The PRA plans to consult on potential changes to the LTI flow limit in due course and states that offering this modification does not indicate any decision or outcome of that future consultation. The UK Financial Conduct Authority (FCA) has also updated its webpage to advise that firms seeking to increase high-LTI lending beyond current thresholds to engage with their regulator. FCA-authorised lenders may contact the FCA to discuss tailored guidance. The FCA confirms these interim measures will remain in place until the PRA and FCA update their rules and guidance following public consultation or further notice.

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