FCA amends guidance in response to PRA rules

Lenders will have to write a minimum volume and value of mortgages over four consecutive quarters before they are expected to apply the 15 per cent loan-to-income limit, the FCA has said.

In its response to the PRA’s announcement of change to the way in which the new limit on high LTI lending will be implemented, the City watchdog said it would be amending its own guidance to help niche lenders.

According to the FCA’s updated guidance, the application of the LTI will also be set at group level, rather than regulated entity level.

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A spokesman for the FCA said: “We have been liaising with the PRA to ensure that our guidance is consistent with their rules.

“We are going to set a threshold of a minimum number, as well as a minimum value, of mortgages that a firm has to write before it is expected to apply the LTI limit.

“A firm that is part of a group may allocate all or part of its high LTI allowance to any other member of the group.”

After the changes, Paul Smee, director general of the Council of Mortgage Lenders, said: “The PRA’s approach – extending the value-based minimal threshold to lenders who write no more than 300 mortgages a year – is sensible and practical, facilitating competition without undermining financial stability.”

This followed a lengthy consultation, which caused some concern for the industry. In August, the Building Societies Association issued a response to the financial policy committee, in which it said approximately 15 of the BSA’s 44 members would be captured by this lending threshold.

It added: “Some of our members are concerned about the extent to which the higher LTI cap discriminates against first-time buyers in London and the southeast.”

What is the loan-to-income limit?

The limit applies to all regulated mortgage contracts, as defined in the Regulated Activities Order 2000.

This includes some bridging loans and some buy-to-let lending that falls within that definition.

It also includes mortgages ported from one property to another.

The threshold is set for those lenders who lend more than £100m over four consecutive quarters according to product sales data.

There is a 15 per cent limit in that same period of total borrowing.

Source: FCA/PRA

Adviser view:

Adrian Anderson, director of London-based mortgage broker Anderson Harris, said: “This is encouraging news as these niche lenders specialise in providing bespoke lending solutions to wealthy clients who typically have unusual and complex circumstances, often with low incomes but strong asset bases.”