A lot happened to the mortgage market on 28 October, and the Budget speech was only part of it. The 15% cap on each individual lender’s high loan-to-income mortgages formally came to an end that day. The Chancellor announced a rise in the bank surcharge from 3% to 6% for 15 months. And in a letter to Andrew Bailey that most people won’t have read, he told the Financial Policy Committee it “should target improving access to home ownership without prejudicing financial stability, including considering how the LTI framework can better support this”.
Last year’s version of that document talked about first-time buyers too. It didn’t give the LTI framework something to target.
Now the FT reports that the FPC is examining whether to redefine a high loan-to-income mortgage as five times income instead of 4.5. I should be careful here, because the Bank hasn’t confirmed that. Its line to the FT is that it “keeps its housing tools under regular review”. But regulators did say in October that calls to change the threshold have been passed to the FPC for its next look at housing policy, and I’d be surprised if the story came from nowhere. The FT also points out that easing the rule would soften the blow of the tax rise for banks. I don’t know that anyone planned it that way, but the timing won’t have gone unnoticed.
You can see why the pressure has built. The PRA has just started publishing the number that matters, which is the share of mortgages in scope of the policy written at 4.5 times income or more. It was 9.7% in the third quarter of 2025. By the second quarter of this year it was 14.1%, or 29,240 mortgages out of 208,090. Take 15% of that total and you get about 31,200, which leaves the whole market with room for roughly 2,000 more mortgages a quarter.
The Bank has been relaxed about that climb. Its July Financial Stability Report said the share moving closer to the limit “shows the updated Recommendation working as intended”. And 15% isn’t a cliff. Regulators have set no expectation for anyone to cut back yet, and if they do, lenders above the line would be asked to come down gradually. But think about how that looks from a broker’s desk. UK Finance warned regulators about “first movers” using the headroom before everyone else, and about lending policies having to change at short notice. If you place a lot of cases at these multiples, the lender saying yes today might not be the one saying yes next year.
So what’s the case for moving the line? UK Finance has made it most directly. It says lending between 4.5 and 5 times income “is no riskier than lower-LTI lending”, and it has a chart to show it, which the FT reproduced. Sort the UK’s mortgages by their multiple when granted, and loans at 4.5 to 5 times show arrears of about 0.44%, against about 0.46% for 4 to 4.5 times. The Building Societies Association wants a full review too, including whether the threshold and the 15% are still the right ones.
I’ve got no attachment to 4.5. It’s a number a committee chose in 2014, and after 38 years in this industry I’m not precious about numbers committees choose. But I think that chart is being asked to carry more than it can.
For eleven years each lender had a cap to live within, and the FPC found most of them kept a buffer below it, so they were choosy about who got these loans. Anyone who has placed a case at these multiples knows the income floors that come with them. UK Finance itself says that where high-LTI flows are constrained, origination “could skew towards mass-affluent, higher-income borrowers with stronger profiles”. If that’s what the cap did, low arrears in that band are what you’d expect to see, and they tell you less about the people the change is meant to reach. I’ve made that argument at more length in a LinkedIn article, because I’d genuinely like lenders to come back on it.
The limit wasn’t really built to keep arrears down anyway. UK Finance accepts as much, and offers disposable income figures to answer the real concern, which the FPC describes as “large cuts to consumption associated with an over-indebted household sector”. A family can stay up to date on the mortgage and stop spending on everything else, and no arrears table will ever show it.
Then there’s what moving the line does to the count. UK Finance says around half of first-time buyer lending above 4.5 times sits between 4.5 and 5. If the wider market is anything like that, the share counted against the limit falls from about 14% to about 7%, which squares with the FT’s report that UK Finance sees extra capacity equivalent to 7% of new mortgages. UK Finance’s main proposal is framed as working “without increasing the aggregate 15% flow limit”. But nothing reserves that room for the borrower at 4.8 times. It’s open to 5.5 and 6 times as well, and on the same chart arrears are about 1% at 5.5 to 6 and over 2% at 6 to 7.
I wouldn’t lean too hard on those bars. The chart covers the whole stock of mortgages, and some of those loans may well predate the rules. Still, if it’s good enough to clear the band below 5, it’s good enough to make us ask what sits above it. Regulators noted that some respondents wanted the threshold raised and then “consequently reviewing the calibration of the 15% limit”. That seems to me the real decision, and I haven’t seen it get much attention.
Would it even help as much as people hope? Here’s a bit of arithmetic of my own. Someone on £60,000 borrowing five times income, so £300,000, at 6% over 35 years pays about £1,711 a month. That’s 34% of their gross pay, before tax. Moneyfacts had the average five-year fix hitting 6% in early October, the first time in about three years. UK Finance’s submission in July leaned partly on “lower rates and longer terms available”, and the rate side of that has moved. The latest PRA figure is also for the second quarter, before this autumn’s increases, so I suspect the share could come in lower over the next few quarters without anybody changing a rule.
The FPC told us what it saw as the main barrier only last summer. “Evidence suggested that accumulating a sufficient deposit continued to be the main barrier to owning a home,” it said, and the LTI limit “had limited ability to directly address this barrier”. The Budget has gone after that barrier separately, with £4.7bn for the Your First Home equity loan scheme and a 2.5% deposit requirement. The FCA has been consulting on its own changes, covering interest-only and part-and-part, variable incomes and credit-impaired borrowers. UK Finance has asked for the FCA’s proposals and the LTI work to be looked at “in unison”.
I can see a sensible person signing off any one of those. What I find harder to see is who’s adding them up, which I suppose is what the FPC is for. Its next record is due on 26 November.
Nationwide has prices flat on the month and up 0.5% on the year, so nobody’s going to call this overheating today. But UK Finance itself describes a market with “structural supply shortages”. If we hand more borrowing power to a lot of buyers at once and the houses don’t come, who ends up with the money, the first-time buyer or the person selling to them?
Sources:
Financial Times, “Bank of England explores easing key limit on riskier mortgage lending”, Martin Arnold, October 2026: https://www.ft.com/content/78363dc1-90fa-4a10-b84a-69be3d749f42
HM Treasury, Remit and recommendations for the Financial Policy Committee, 28 October 2026: https://www.gov.uk/government/publications/remit-and-recommendations-for-the-financial-policy-committee-budget-2026
HM Treasury, Budget 2026: https://www.gov.uk/government/publications/budget-2026-document/budget-2026-html
PRA, High loan to income lending (aggregate flow data): https://www.bankofengland.co.uk/prudential-regulation/key-initiatives/high-loan-to-income-lending
PRA and FCA, PS19/26 High loan to income lending, October 2026: https://www.bankofengland.co.uk/prudential-regulation/publication/2026/october/high-loan-to-income-lending-policy-statement
Bank of England, Financial Stability Report, July 2026: https://www.bankofengland.co.uk/financial-stability-report/2026/july-2026
Bank of England, Financial Policy Committee Record, July 2025: https://www.bankofengland.co.uk/financial-policy-committee-record/2025/july-2025
UK Finance, response to PRA CP6/26 and FCA CP26/12, 1 July 2026: https://www.ukfinance.org.uk/policy-and-guidance/consultation-responses/uk-finance-responds-lti-in-mortgage-lending-proposals
Building Societies Association, response to CP6/26: https://www.bsa.org.uk/information/industry-responses/bsa-responds-to-the-pra-and-fca-cp6-26-high-loan-to-income-(lti)-lending
FCA, CP26/18 Mortgage Rule Review: https://www.fca.org.uk/publications/consultation-papers/cp26-18-mortgage-rule-review-responsible-lending
Moneyfactscompare, “Average 5-Year Fixed Mortgage Rate Hits 6%”, 5 October 2026: https://moneyfactscompare.co.uk/news/mortgages/avg-5-year-fixed-rate-at-6pc/
Nationwide House Price Index, October 2026: https://www.nationwidehousepriceindex.co.uk/media/hpi/reports/annual-house-price-growth-slows-again-in-october