CP25/6: Proposed amendments to PRA Rulebook and FCA Guidance concerning the de minimis threshold for the Loan to Income flow limit in mortgage lending

Read CP25/6 (PDF)[1] 

Why we are consulting

The FPC has recommended increasing the volume of mortgages a lender needs to make the LTI flow limit apply from £100m per four rolling quarters, to £150m per four rolling quarters. The Prudential Regulation Authority (PRA) give this effect through their Rulebook, and we give this effect through guidance, revised in February 2017 (FG17/2) and need to update this.

Who this applies to

This consultation is relevant to mortgage lenders subject to the PRA’s rules, described in paragraph 2.7 of the consultation paper (CP), and to FCA-authorised mortgage lenders that are not a subsidiary of PRA-authorised firms.

Next steps  

This consultation has now closed. 

We will publish feedback on responses once we, and the PRA, have reviewed your comments. We aim to issue the FCA’s Finalised Guidance and the PRA’s Policy Statement later this summer, alongside the feedback statement.

Background

The LTI flow limit ensures that mortgage lenders limit the number of new residential mortgage loans made with an LTI ratio at, or greater than, 4.5 to no more than 15% of their total number of new mortgage loans per annum.

Currently the de minimis threshold exempts from the LTI flow limit lenders that extend residential mortgages of less than £100m in value or fewer than 300 in number per annum.

The change would address inadvertent regulatory tightening by increasing the value of residential mortgage lending that small lenders can extend before becoming subject to the LTI flow limit, thereby contributing to the regulators` objectives on competition, and therefore competitiveness and growth.

The FCA is required to consult when changing general guidance. The PRA has a statutory duty to consult when changing rules (FSMA s138J).

This consultation is separate to the FCA’s Mortgage Rule Review[2].