The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have confirmed they will consult with lenders regarding the 4.5x loan-to-income (LTI) cap, a rule that many institutions claim restricts the amount of mortgage lending they can provide.
What Does the Current 4.5x LTI Cap Mean?
Under the existing rules, lenders cannot allocate more than 15% of their annual mortgage lending to loans at or above 4.5 times an applicant’s salary. However, this restriction currently does not apply to lenders providing less than £100 million in home loans per year.
Now, regulators are proposing to increase this exemption threshold to £150 million, allowing more small lenders to offer higher LTI mortgages without facing regulatory limits.
The PRA stated:
“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’ secondary objectives on competition, and therefore competitiveness and growth.”
While this proposal may benefit smaller lenders, large institutions remain bound by the same 4.5x cap, disappointing industry leaders who have been pushing for broader reforms.
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Will You Be Able to Borrow More?
With regulatory changes on the horizon, homebuyers—especially contractors—are left wondering how these potential reforms could impact their borrowing power. If the limits are adjusted, securing a mortgage with a higher loan-to-income ratio could become easier.
Curious about how much you could borrow? Try our How Much Can I Borrow Calculator to estimate your mortgage affordability under the current rules.
Industry Calls for Further Easing of Mortgage Restrictions
Several industry bodies, including UK Finance, the Building Societies Association, and the Intermediary Mortgage Lenders Association, have urged regulators to ease the LTI cap more broadly to support economic growth.
Nationwide has also called for reforms, emphasizing that its Helping Hand mortgage product—which accounted for 23% of its first-time buyer loans last year—was limited due to the current cap.
Henry Jordan, Director of Home at Nationwide, explained:
“We are at the limits of where we can take this product. We have not named a particular threshold but, if the limit was lifted to, say, 20%, we could fund another 10,000 first-time buyers over the next year.”
The consultation will close on 8 May, and while it may bring positive changes for smaller lenders, many are concerned that the broader lending market will remain constrained.
Use Our Mortgage Calculator to Find Out How Much Can You Borrow!
Looking for a Mortgage as a Contractor?
At Contractor Mortgage Solutions, we specialize in helping contractors and self-employed professionals secure the best mortgage deals based on their unique income structures. Whether the rules change or not, we work with lenders who understand contracting income and can maximize your borrowing potential.
Get in touch today to discuss your options with a specialist mortgage advisor.