We invite views on the proposed guidance on the loan to income (LTI) ratio for residential mortgages.
In June 2014, the Financial Policy Committee (FPC) made a recommendation to the Prudential Regulation Authority (PRA) and the FCA about the loan to income (LTI) ratio for residential mortgages:
The PRA and the FCA should ensure that mortgage lenders do not extend more than 15% of their total number of new residential mortgages at loan to income ratios at or greater than 4.5. This recommendation applies to all lenders which extend residential mortgage lending in excess of £100 million per annum. The recommendation should be implemented as soon as is practicable.
The PRA is consulting on proposals to implement the FPC’s recommendation by making a rule that applies to banks, building societies, friendly societies, industrial and provident societies, credit unions, PRA designated investment firms, and overseas banks based outside the EEA in relation to their UK branch activities. These rules apply to these firms’ at as subsidiary level not already caught by the rules.
Our proposed guidance sets out:
This is general guidance that does not relate to the FCA Handbook. Cost benefit analysis is not included in this consultation.
FCA-authorised mortgage lenders that are not a subsidiary of a PRA-authorised firm that is a bank, building society, friendly society, industrial and provident society, credit union, PRA-designated investment firm and overseas banks.
The consultation will be particularly relevant to FCA-authorised mortgage lenders with annual residential mortgage lending in excess of £100m, because they should consider what actions could be taken to meet the expectations in the proposed guidance.
Please send us your views by 7 September 2014. Send your responses by email to LTIratios@fca.org.uk or by post or telephone to:
Policy, Risk and Research Division
The Financial Conduct Authority
25 The North Colonnade
London E14 5HS
Telephone: 020 7066 4856
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