First-time buyers could be given a boost by lenders having the ability to offer more mortgages at high loan-to-income (LTI) levels, if they choose to.
The Bank of England said its Financial Policy Committee (FPC) had discussed the current operation of its LTI limits.
The developments mean that individual lenders may choose to have more than 15% of their lending at a high LTI ratio, although a 15% aggregate cap will be kept in place across lenders as a whole.
Different lenders will have different risk appetites.
The FPC recommended the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) amend implementation of its LTI flow limit, to allow individual lenders to increase their share of lending at high LTIs.
It recognised that, in doing so, such high LTI lending by individual lenders could exceed 15% of their total number of new residential mortgages.
The FPC judged that the aggregate 15% limit continues to provide appropriate insurance against the financial stability risks from the household sector becoming overly indebted during periods of rapid house price growth.
The share of lending at an LTI ratio of greater than or equal to 4.5 rose to 9.7% in the first quarter of 2025.
This was projected to rise further over the year, in part due to the use of lower stress rates in borrower affordability tests following the FCA’s March statement on its mortgage rules and also as a natural consequence of the economic cycle, the Bank said.
Many lenders have recently changed their mortgage affordability tests, potentially enabling some people to borrow more.
The Bank said that prospective first-time buyers typically need both a large deposit and a large loan relative to their incomes to be able to access a mortgage.
The rule that a lender could not grant more than 15% of new mortgages at over 4.5 times income came into effect in 2017.
But banking and finance industry body UK Finance has previously said that since the rules came into force, alongside tightened affordability more broadly, it has seen changes for first-time buyers in the level of deposit required, particularly in and around London.
UK Finance’s modelling indicated that first-time buyers in London seeking to borrow below 4.5 times their income may need to find deposits in excess of 2.5 times their annual household income, compared with around 1.9 times before these rules came in – to make up for the lower loan size available.
Around 30% of all lending at a loan-to-income ratio of more than 4.5 takes place in London, according to UK Finance, which said the layering of regulation, combined with house prices outstripping wage growth, has made it more challenging for prospective buyers to access mortgage credit without substantial external financial support, such as family assistance.
Andrew Montlake, chief executive of Coreco mortgage brokers said: “This is a welcome and pragmatic move from the Bank of England that reflects the need to adapt to today’s housing and income realities.
“By loosening the reins ever so slightly, lenders can now offer more support to creditworthy borrowers – particularly first-time buyers – without compromising the overall stability of the market.
“It’s not a return to reckless lending, but a recognition that sensible flexibility can make a real difference in helping more people get on the ladder. If implemented smartly, this could be a real shot in the arm for the market.”
