FCA consults on moving mortgage LTI ratios to rolling quarter limit

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The Financial Conduct Authority has set out proposed amendments to guidance on loan to income (LTI) ratios in mortgage lending with a view to moving to a four-quarter rolling limit.

In 2014, the Financial Policy Committee made a recommendation on LTI ratios in mortgage lending asking regulators to ensure that mortgage lenders limit the number of mortgage loans made at or greater than 4.5 times LTI to no more than 15 per cent of their loan book.

The guidance on LTI ratios will continue to exclude the second-charge market for now, but as the market has come under FCA regulation since the first recommendation was issued, a consultation on including second charges in the limits will take place next year.

The FPC has decided to leave the calibration of both the affordability test and the LTI flow limit unchanged.

The FCA says: “the amendments are being made to reflect findings that the current fixed quarterly nature of the LTI flow limit could make it harder for some firms to manage their business pipeline.”

It also says that the seasonal nature of the market could create difficulties, “particularly for smaller lenders.”

The FCA is taking responses to the guidance until 10 January 2017 and aims to move to the four-quarter rolling limit in the first quarter of next year.

A spokesperson for the Council of Mortgage Lenders says that the proposals are welcomed and it will be liaising with members as part of the consultation process.