Bank of England explores mortgage limit changes for UK home lending

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The Bank of England is considering raising the high loan-to-income threshold for mortgages from 4.5 to five times household income, potentially freeing up 7 per cent more lending capacity.
Mortgages above the 4.5 times income threshold have increased to 14.1 per cent of the market in Q3 2024 from 11.8 per cent in Q4 2023, approaching the aggregate cap.
First-time buyer mortgages with a loan-to-income ratio of 4.5 or higher jumped 66 per cent year-on-year to 45,800 in 2023, following earlier rule easing.

Review of loan-to-income threshold

As reported by the Financial Times, the Bank of England is examining one of the most significant revisions to its mortgage framework since the rules were introduced after the 2008 financial crisis.

Since 2014, most UK lenders have been restricted from issuing more than 15 per cent of mortgages to borrowers taking on more than 4.5 times their income. In July 2025, the central bank eased the regime by applying that 15 per cent cap across the mortgage market as a whole rather than to each lender individually.

The Financial Policy Committee is now considering whether to raise the threshold for a higher-risk mortgage to five times household income. UK Finance says that change could release extra lending capacity equal to about 7 per cent of new residential mortgages, after the market totalled roughly £200bn last year.

Chancellor John Healey supports further changes and says in a letter to Governor Andrew Bailey that the committee should improve access to home ownership without undermining financial stability. The Bank of England says it keeps its housing tools under regular review in line with the FPC's primary and secondary objectives.

Potential boost for banks and first-time buyers

Lenders and building societies argue the reform would help groups that often struggle to secure a mortgage, including first-time buyers, self-employed workers and borrowers with low but predictable incomes. They also contend that easing the rules would soften the effect on banks of the sector tax rise announced in this week's Budget.

UK Finance says mortgages written at between 4.5 and five times household income have recorded lower arrears over the past decade than loans below the 4.5 times level. The Building Societies Association also backs a higher threshold, saying it would unlock lending capacity that is currently heavily constrained for first-time buyers and other underserved groups.

Industry participants are also pressing for other adjustments, including raising the 15 per cent limit on high loan-to-income mortgages and exempting more smaller lenders. Bank of England data cited in the article show the market is moving closer to the aggregate cap, with mortgages above the 4.5 times threshold rising from 11.8 per cent of the market in the fourth quarter of 2025 to 14.1 per cent in the third quarter of this year.

That earlier easing already lifts activity in some segments. According to Financial Conduct Authority data, the number of first-time buyer mortgages with a loan-to-income ratio of 4.5 or above reaches 45,800 last year, up 66 per cent from 2024.

Our earlier coverage of Bank of England Deputy Governor Sarah Breeden’s remarks at the IMF meetings highlighted that the UK economy has absorbed the energy price shock better than initially feared. The piece also noted that officials remain focused on lingering risks such as inflation and market volatility, underscoring the need for ongoing monitoring and policy flexibility to protect financial stability.

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