Bank of England regulators ease high loan-to-income mortgage lending cap for UK lenders

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BoE eases mortgage lending cap

Highlights

Bank of England regulators removed the firm-specific 15% cap on high loan-to-income mortgage lending for PRA-authorised lenders, effective July 2025.
The revised framework allows individual lenders greater flexibility to exceed the 15% cap if aggregate lending remains within limits, with required gradual adjustments if the market breaches FPC recommendations.
The PRA and FCA expect the new policy to increase competition among lenders and potentially boost homeownership rates, especially for first-time buyers, while enhancing market transparency through quarterly disclosures.

Revised mortgage rules and oversight framework

As reported by Bank of England, citing the Prudential Regulation Authority, the final policy removes the firm-specific 15% cap on high loan-to-income, or LTI, mortgage lending for PRA-authorised lenders and relevant subsidiaries, while related Financial Conduct Authority guidance applies to FCA-authorised mortgage lenders outside PRA groups.

In July 2025, the Financial Policy Committee recommended that the PRA and FCA change how its high LTI flow limit is implemented. The aim is to let individual lenders increase their share of higher-LTI lending even if that share rises above 15% of their own new residential mortgages, provided the aggregate market flow remains consistent with the FPC's recommended 15% limit.

Under the policy, lenders can set their own high LTI lending strategies in line with their risk appetite and business models. If aggregate lending moves to a level that is inconsistent with the FPC limit, regulators may expect firms to reduce their share of high LTI lending back towards 15% gradually and predictably.

After consultation, the regulators amended the final policy so that a firm's high LTI flow, and any expectation for adjustments, is measured on a rolling four-quarter basis. At the same time, regulators will continue using a single calendar quarter measure to monitor the aggregate high LTI flow and judge whether it remains consistent with the FPC aggregate limit.

Competition, transparency and housing market effects

The PRA and FCA say the revised framework is expected to increase use of the aggregate limit and strengthen competition among lenders. Regulators also say greater flexibility should support a broader range of business models and may lift homeownership rates, particularly because first-time buyers account for a growing share of high LTI lending.

The policy is accompanied by a new PRA supervisory statement and new FCA replacement non-Handbook general guidance covering governance, risk management and the process for managing downward adjustments. These sit alongside existing requirements in the PRA Rulebook and the FCA's Senior Management Arrangements, Systems and Controls regime, and include stylised examples showing how the adjustment mechanism works in practice.

To improve transparency, the PRA says it will publish the aggregate single-quarter high LTI flow measure on its website each quarter. The FCA will also publish information when adjustments are expected, while regulators have decided to add data showing the total volume of completed mortgages covered by the policy and how that compares with all completed mortgages in the quarter.

Our earlier coverage of the UK’s October Budget preparations explained how the government aims to protect market confidence by keeping any new measures fully funded under its fiscal rules, despite the added strain from war-related shocks. It also outlined likely policy trade-offs—from targeted energy-bill support to higher taxes for some sectors—showing how rising household costs can quickly feed into wider public-finance and policy decisions.

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