For the past 10 years, UK mortgage lenders have had to limit the number of loans they can extend at higher income multiples.
In June 2014 the Bank of England’s Financial Policy Committee made a regulatory recommendation restricting the number of mortgages, extended at loan-to-income ratios of 4.5 or more, to 15 per cent of a lender’s new residential mortgage lending.
This LTI flow limit applies to lenders extending residential mortgage lending of more than £100mn a year.
The cap was one of two recommendations made by the FPC in 2014. The other, on interest rate stress testing, was withdrawn in August 2022.
But a decade on, lenders are calling for the LTI flow limit to be reviewed, citing the barriers that thousands of potential homeowners are facing as a result of these stringent borrowing rules.
In March, one of Nationwide’s requests of the government for the Spring Budget was an increase in higher LTI lending, so that it could support more first-time buyers.
Of course, this was before the general election was called, but Nationwide is still adamant that change needs to happen to tackle the problems of ever-rising deposits and the affordability barrier.
“Our standout proposition is ‘Helping Hand’; it lends up to 95 per cent LTV and 5.5 times income, so it tackles both the deposit and affordability issue,” says Nationwide’s director of home, Henry Jordan.
“We launched it in April 2021, and it's helped thousands of first-time buyers.
“We probably could have helped more first-time buyers, but the 15 per cent limit has definitely been an issue at times – not all the time, but at times – since that launch. And we have to apply additional criteria to stay inside that limit.
“It's criteria that we're only applying to manage the volumes of lending we’re doing in that segment, not because we need to do it from an internal risk standards perspective. So given that, our main ask of policy setters is that the 15 per cent limit is reviewed."
This request applies to whoever ends up in government after the general election. Jordan adds: “My personal view is that unless it is reviewed, any new initiative to help first-time buyers (Help to Buy may be the exception) is going to hit the same constraint.”
What can borrowers get for their money?
While it is often the highest loan-to-value available to first-time buyers, an analysis of average property prices shows that for a single applicant earning the average UK salary of nearly £35,000 and borrowing 4.49 times income, a 95 per cent LTV mortgage would only afford them an average-priced property in the North East.
Clearly, this only suits those whose employment or family lifestyle is centred around the North-East of England.
Meanwhile for joint applicants, average-priced properties in the East of England, South East and London would remain unaffordable even after a 5 per cent deposit.
You can see a summary of this in the table, below.
