PRA & FCA raise high LTI lending cap to £150M

TLT picks out the key points you shouldn’t miss...

What’s this about?

The PRA and FCA have jointly issued policy statement setting out new rules and guidance on increasing the trigger for the flow limit on High Loan to Income (LTI) lending to £150 million, to allow smaller lenders flexibility before being subject to the LTI cap.

At the same time, the PRA has announced it is offering interim modification to the LTI rule by consent.

Our Head of Mortgages and Secured Lending, Richard Clark says...

“The proposed changes will be welcomed by smaller lenders, as it will enable them to grow, whilst allowing larger lenders greater flexibility in the application of the LTI rules.”

The points not to miss...

Policy Change Overview:

a) The LTI flow limit now applies only to lenders issuing over £150 million in residential mortgages annually (up from £100 million).

b) This change is implemented via amendments to the PRA Rulebook and FCA General Guidance.

c) Effective date: 11 July 2025.

d) From 9 July, the PRA has also said it will consider modifying the LTI threshold limit on application by firms it regulates, until 30 June 2026 (at the latest).

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Who It Affects:

a) Applies to banks, building societies, credit unions, and other PRA-regulated firms.

b) FCA guidance applies to mortgage lenders not covered by PRA rules

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Rationale

a) The threshold increase reflects UK economic growth since 2014 and avoids unintended regulatory tightening.

b) Aims to support competition, innovation, and growth, especially among smaller lenders.

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Regulators’ Final Position

a) The threshold remains at £150 million, as recommended by the Financial Policy Committee (FPC).

b) Around 80 lenders will now be exempt from the LTI flow limit (up from 70).

c) The FPC will review the threshold regularly to ensure it remains appropriate.

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Other Suggestions (Not Adopted)‍

a) Removing or adjusting the 15% LTI cap.

b) Introducing tiered or combined LTI/Loan-to-Value limits.

c) Exemptions for long-term fixed-rate products.

These were deemed outside the scope of this consultation but may be considered in future FPC reviews.

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Key Definitions in FCA Guidance

a) High LTI Mortgage: A mortgage where the loan is ≥ 4.5 times the borrower’s (or joint borrowers’) gross income.

b) High LTI Allowance: The number of high LTI loans a firm may issue within a period, capped at 15% of total regulated mortgage contracts.

c) Relevant Period: The current quarter and the three preceding quarters.

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Thresholds and Conditions (in FCA Guidance)

a) Condition A: Firm issued ≥ £100M in mortgages in the four quarters ending 30 June 2014 (with ≥ 300 contracts).

b) Condition B: From 11 July 2025, threshold raised to £150M over two consecutive four-quarter periods (with ≥ 300 contracts in each).

c) Condition C: A firm falls below the £150M threshold or issues fewer than 300 contracts in two consecutive four-quarter periods—then the LTI limit no longer applies.

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Expectations for Firms (in FCA Guidance)

a) Firms meeting Condition A or B must ensure no more than 15% of new mortgages in a rolling four-quarter period are high LTI.

b) Firms in a group may allocate high LTI allowances among group members.

d) Firms must keep records of any allowance allocations.

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Exclusions (in FCA Guidance)

The LTI limit does not apply to:

a) Re-mortgages with no change to the principal.

b) Lifetime mortgages.

c) Second charge or non-first legal charge mortgages.

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Monitoring and Enforcement (in FCA Guidance)

The FCA will monitor compliance using Product Sales Data (PSD). If a firm breaches the guidance, the FCA may use its powers under section 55L FSMA to restrict high LTI lending.

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