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.
Britain’s biggest building society – Nationwide – welcomed the announcement and said it is aiming to increase its high LTI lending limit.
The society said the additional flexibility could enable it to lend to an estimated 10,000 more first-time buyers a year.
Dame Debbie Crosbie, Nationwide’s chief executive, said: “This is good news for first-time buyers and is also a boost to the UK’s housebuilding ambition and the wider economy.
“We have long argued that relaxing this regulatory restriction will provide confidence to both lenders and housebuilders without materially increasing risks.
“It will help people who struggle to get on the property ladder because high rents and living costs have made saving for a deposit and meeting mortgage affordability tests extremely challenging.
“This is a welcome move and a strong signal that Government and regulators are working together to boost economic growth and competitiveness.”
The vast majority of Nationwide’s high LTI lending is done through its Helping Hand scheme, which allows eligible first-time buyers to borrow up to six times income. Since its launch in 2021, Helping Hand has helped close to 60,000 first-time buyers onto the property ladder.
The FPC has 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.”
Paul Broadhead, head of mortgages and housing at the Building Societies Association (BSA) said: “This is a step in the right direction and will enable more first-time buyers that can demonstrate affordability to access home ownership.
“Individual firms, including building societies will have immediate flexibility to lend to more borrowers without increasing the overall risks in the financial system.
“We have been calling for an uplift in the FPC LTI flow limits for some time and it is likely that today’s announcement will deliver meaningful benefits to aspiring homeowners and in turn, help stimulate economic growth.
“We look forward to continuing to work with regulators and Government to review mortgage regulation to ensure that we have a market that is innovative, fit for the future and maintains consumer protection at its heart.”
Charles Roe, director of mortgages at UK Finance, said: “We welcome today’s announcement to review the loan-to-income flow limit, which follows several months of constructive engagement with the PRA and FPC discussing constraints imposed by the current framework.
“Coupled with changes the FCA is making to its mortgage affordability rules, this announcement should benefit first-time buyers as well as those looking to move up the housing ladder.
“Lenders will always lend responsibly and this is a move that could increase mortgage lending and stimulate economic growth.”
