UK mortgage lenders will gain greater flexibility to offer loans at higher income multiples after the Bank of England confirmed the removal of the existing 15% restriction on high loan-to-income lending at individual lender level.
The Prudential Regulation Authority and Financial Conduct Authority have finalised a new framework that will take effect on 28 October 2026. It allows individual lenders to exceed the previous firm-level limit while retaining the broader safeguard intended to keep high loan-to-income lending consistent with 15% of the market.
For regulatory purposes, a high loan-to-income mortgage involves borrowing of at least 4.5 times the applicant’s income. The previous arrangements restricted the proportion of qualifying new mortgages that relevant lenders could issue above that multiple, subject to applicable exemptions.
Under the replacement policy, individual lenders may determine their own share of higher-multiple lending according to their business models and appetite for risk. The regulators will monitor the aggregate position and intervene where necessary to maintain consistency with the Financial Policy Committee’s recommended market-wide limit.
The distinction allows providers to pursue different lending strategies without removing the overall constraint on the growth of household indebtedness.
A lender specialising in first-time buyers, for example, may face a different pattern of borrowing requirements from an institution with a larger established homeowner customer base. Giving individual providers more flexibility could allow them to serve those markets without all being bound to identical portfolio proportions.
The policy does not require lenders to increase mortgage sizes or relax underwriting criteria. Decisions about individual applications will continue to depend on income, affordability, creditworthiness and each lender’s internal lending policies.
The regulators have also changed the way they will assess lenders’ compliance with any future adjustment expectations. Individual high loan-to-income flows will be measured over a rolling four-quarter period, reducing the likelihood that a short-lived fluctuation in lending volumes will lead to an abrupt regulatory response.
If aggregate high-multiple lending becomes inconsistent with the 15% recommendation, the PRA and FCA may expect lenders whose individual flows exceed 15% to reduce their future lending gradually.
Those reductions would apply to future lending decisions rather than requiring lenders to withdraw mortgage offers that have already been approved. The pace of adjustment would be determined by the regulators and communicated through the published framework.
The PRA will publish quarterly aggregate lending information to give institutions greater visibility of the market. At the time of the policy announcement, the regulators had not imposed any current expectations requiring lenders to reduce their high loan-to-income activity.
The framework consequently places greater emphasis on lenders’ own monitoring and governance arrangements. Boards will need to understand how their mortgage portfolios compare with published market data and consider whether changes to lending volumes or product criteria may eventually be required.
Regulatory flexibility could support competition among mortgage providers, particularly where banks want to develop products for borrowers whose incomes do not align neatly with prevailing house prices.
However, a higher permissible share of lending at large income multiples does not necessarily translate into improved access for every applicant. Interest rates, deposits, living costs and affordability assessments will continue to influence whether individual households can obtain and service larger mortgages.
The policy also leaves intact the wider financial stability rationale for limiting excessive borrowing relative to income. The previous framework was designed to reduce the risk that a substantial rise in highly indebted households could amplify economic stress during a downturn.
By retaining aggregate supervision, regulators are seeking to preserve that protection while allowing greater variation between institutions.
The practical effects will become clearer after 28 October, when lenders can begin applying the revised arrangements and the PRA continues its quarterly monitoring of high loan-to-income activity.
You must be logged in to post a comment.