The Bank of England has relaxed how the mortgage cap on high loan-to-income (LTI) lending is applied, giving individual lenders immediate flexibility while retaining the 15% sector-wide limit.
Under the revised rules, firms may now issue more loans where the borrowing exceeds 4.5 times gross income — so long as the total share across all lenders remains within the existing cap. The change takes effect from 11 July 2025, but the Prudential Regulation Authority (PRA) has issued a “modification by consent” enabling immediate uptake.
“Allowing some individual lenders temporary headroom should raise the market-wide share of higher-LTI lending only modestly, to around 11% by end-2025, well within the existing 15% limit,” the Bank said in a statement.
Previously, the 15% ceiling applied to both individual lenders and the sector as a whole. However, the Financial Policy Committee (FPC) noted that cautious behaviour by banks was unnecessarily constraining mortgage supply. Despite the flexibility in the aggregate cap, the share of high-LTI mortgages stood at just 9.7% in Q1 2025 and is projected to reach 11% by year-end.
The change aligns with the new government’s push for what it describes as “pro-growth” regulatory adjustments aimed at boosting home ownership. However, the Bank cautioned that income multiples are not the main hurdle for buyers. “Accumulating a sufficient deposit continues to be the main barrier to home ownership; nearly 80% of would-be first-time buyers cannot fund even a 5% deposit,” it said in its Financial Stability Report published 9 July.
To ensure oversight during the interim period, lenders opting into the waiver must report monthly data on high-LTI lending volumes and notify the PRA of any changes to their mortgage risk policies.
The modification will expire on 30 June 2026, or sooner if permanent rules are introduced. The PRA and Financial Conduct Authority (FCA) are expected to consult on a revised rulebook next year.
Smaller lenders are also set to benefit. The PRA has raised the de-minimis threshold — the point at which the flow limit begins to apply — to £150 million of annual lending. This change is designed to ease compliance costs and is expected to benefit around 10 additional institutions.
The Bank’s FPC confirmed that overall capital levels in the UK banking system remain “broadly appropriate” and said it will review them again alongside its December 2025 Financial Stability Report.
