BBA urges Bank to exclude HNW clients from LTI cap

The British Bankers’ Association has urged the Bank of England to exclude high-net-worth clients from its new LTI cap.

From October, lenders must limit the volume of loans they originate above 4.5 times income to 15 per cent of new lending.

While the BBA says it “broadly supports” the limit on high-LTI lending, it says the new rules could negatively impact private banks, who typically serve high net worth clients whose ability to repay debt is based on assets and income combined, as opposed to just income.

BBA policy adviser Nicholas Smith says: “We have some serious concerns about what such legislation would mean for a small, but increasingly important part of our financial services industry – private banks and high net worth customers.

“These individuals typically borrow differently to most customers and have more intricate finances than most of us.”

Smith says enforcing the LTI cap, in its current form, would unfairly penalise private banks and would stifle competition.

He says: “The BBA and policymakers want to see more competition in the banking industry. This measure could leave some private banks at a distinct disadvantage to their peers both domestically and internationally.”

As a result, the BBA says it would like to see high net worth individuals excluded from the LTI cap, saying: “We hope that the Prudential Regulation Authority has taken another look at these proposals when it issues its final rules next month.”

The new regulations were first recommended at the Financial Poilcy Committee’s June meeting and the Building Societies Association last month urged policymakers not to make the cap a permanent fixture in the mortgage market, arguing it would be a “backwards step”.

The Bank of England will also require lenders to stress test borrowers against a 3 per cent rise in the prevailing interest rate at the point of taking out the loan.