PRA and FCA to relax high-LTI lending rules this month – Mortgage Strategy

Mortgage lenders will be given greater flexibility to offer high loan-to-income (LTI) homeloans under new rules from the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA).

The regulators will remove the individual 15% cap on high LTI lending while retaining an overall market limit designed to protect financial stability and prevent excessive household borrowing.

The new system will come into force on 28 October 2026.

Currently lenders that want more than 15% of their residential mortgage book to exceed an LTI of 4.5x must apply to the regulator first.

This has been the case since July 2025, when the Financial Policy Committee (FPC) told the PRA and FCA that the previous limit of no more than 15% high-LTI lending per firm could be relaxed so long as the overall market does not exceed 15%.

Under the incoming framework, individual lenders will be able to exceed the 15% threshold, provided overall market lending remains consistent with the limit recommended by the Financial Policy Committee (FPC).

The FPC recommended the changes in July 2025 to give lenders greater freedom to set lending strategies according to their business models and risk appetite. The FCA and PRA consulted on the issue in April 2026.

The regulators expect the reforms to encourage competition, improve access to mortgages for creditworthy borrowers and potentially support homeownership, particularly among first-time buyers, who account for an increasing share of high-LTI lending.

Following industry feedback, the regulators have also changed how lenders’ lending levels and any required reductions will be measured.

Individual lenders’ high-LTI lending will be assessed over a rolling four-quarter period, while the overall market will continue to be monitored quarterly using a single-quarter measure.

The change follows concerns that quarterly assessments could create volatility and force sudden changes to lending criteria because of seasonal fluctuations and unpredictable mortgage completions.

If aggregate high-LTI lending bumps up against the FPC’s 15% limit, regulators may single out lenders and ask them to reduce their high-LTI lending gradually towards 15%.

The PRA will publish quarterly data on aggregate high-LTI lending, alongside information showing the volume of mortgages covered by the policy compared with all completed mortgages. The FCA will publish information when adjustments are expected.

The final policy follows a joint consultation that received 15 responses. While most respondents supported removing the individual cap, calls to change the 4.5x income threshold and overall 15% limit have been referred to the FPC for future consideration.