PRA and FCA consult on LTI ratios

PRA is consulting on changes to its rules and FCA is consulting on guidance to take account of the FPC recommendations on loan-to-income ratios in mortgage lending.  The FPC had asked the regulators to ensure mortgage lenders limit the number of new residential mortgages granted with an LTI of 4.5% or more to 15% of their new loans. PRA has kept this requirement under review, and thinks firms have not had challenges in implementing it. However, it thinks its current fixed quarterly limit could now be causing some difficulties for firms, and plans to replace this with a four-quarter rolling limit. It proposes to make changes to the Housing Part of its Rulebook to reflect this. In parallel, FCA is consulting on changes to its general guidance, as it affects authorised mortgage lenders who are not subsidiaries of PRA-authorised firms, write annual residential mortgage lending in excess of £100 million and issue more than 300 regulated mortgage contracts over four consecutive quarters. FCA’s consultation includes changes to reflect PRA’s proposals, and also clarifies the scope of the LTI flow limit on second charge mortgages, interest roll-up bridging loans, and mortgages ported to another property where there is no increase in the principal outstanding.  PRA (and FCA) asks for comments by 10 January 2017 so it can implement the changes as soon as possible.