The Prudential Regulatory Authority (PRA) has today announced changes in which the new limit on high loan-to-income lending will be implemented.
The PRA’s approach – extending the value-based de minimis threshold to lenders who write no more than 300 mortgages a year – is in the view of the Council of Mortgage Lenders (CML), “sensible and practical, facilitating competition without undermining financial stability”.
The CML had argued that high net worth lending was very different to mainstream mortgage lending, making the 15% limit inappropriate for niche lenders specialising in this sector.
Its director general Paul Smee said: “We are pleased that the PRA listened to the CML and other organisations who argued that the high loan-to-income lending limit was anomalous for niche lenders in the high net worth lending market. While it is not yet entirely clear how this approach will affect individual lenders, it is a clear improvement on the original implementation proposal.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, added: “The loan-to-income benchmark barometer is redundant in the high net worth market and it is welcome news that the PRA has recognised this. This decision returns the flexibility to lenders that they have enjoyed in the past and is important because generally speaking wealthier borrowers can afford greater income multiples.
“The smaller private banks who do fewer than 300 cases a year will be delighted at the decision while the bigger private banks such as Coutts and Barclays Wealth who are part of a group will be able to take the 15 per cent allocation for the whole group. However, there may be some large-ish private banks who do more than 300 cases a year but aren’t part of a big group who could find themselves at a disadvantage.”