Mortgage lenders will have strict limits on how many people can borrow at more than 4.5 times income, under new rules proposed by the FCA.
In a 15-page guidance consultation note, the City regulator issued general guidance in res-ponse to the financial policy committee’s June 2014 recommendations on loan-to-income ratios in mortgage lending.
The FPC’s recommendations to the PRA and FCA included a suggestion to a limit to the number of loans that lenders could make at — or greater than — 4.5 times LTI to no more than 1 per cent of their total number of new mortgage loans.
In its proposals, the FCA said the guidance would be relevant for all FCA-authorised mortgage lenders with yearly residential mortgage lending in excess of £100m.
The guidance consultation, which details what the City watchdog expects firms to do to be consistent with the recommendations, said: “We believe that issuing general guidance is the most proportionate way to ensure that firms act in line with the recommendation.”
Although the FCA does not regulate buy to let, the FCA guidance consultation added: “Some borrowers constrained by the flow limit may be encouraged to make fraudulent applications for buy-to-let mortgages.
“Given the severe penalties associated with mortgage fraud, we do not anticipate that this will become a material point of leakage. However, we expect firms to ensure that application verification procedures for buy-to-let products are robust.”
The guidance will be implemented on 1 October 2014 and all submissions should be submitted by 7 September.
Gareth Hill, press officer for the Council Of Mortgage Lenders said: “This should ensure there is a consistent industry-wide framework for implementation of the new measures that will be inclusive of all firms”
The FCA’s proposed guidance sets out: How firms should act in light of the FPC’s recommendation. How the FCA will determine which firms should apply the LTI limit when the guidance comes into effect. Which firms should apply the LTI limit on an ongoing basis. How the FCA will monitor if a firm’s mortgage lending is consistent with the FCA’s expectations on the LTI limit and what supervisory action may be taken. |
Adviser View
Donna Hopton, director of Norfolk-based Cherry Financial Services, a network for mortgage advisers said: “The very last thing the industry needs is yet another scandal. Lenders must make sure that whatever the internal or regulatory drivers, they deal with matters ethically.”
