By Lawrence White and David Milliken
LONDON, July 9 (Reuters) – British banks and building societies will be able issue more mortgages at high loan-to-income levels, the Bank of England said on Wednesday.
Individual lenders will now be able to have more than 15% of their lending at a high LTI ratio, although the sector as a whole will continue to have a 15% cap, the BoE said.
The BoE said the move should allow more first-time buyers to get a mortgage, although it added that lenders’ deposit requirements were a bigger barrier for most borrowers.
The loosening of the cap on lending to riskier borrowers comes after a call by Britain’s Labour government for regulators to look for ways to encourage economic growth, without risking the stability of the financial system.
The loan-to-income limit was introduced in 2014 as part of measures to discourage excessively risky mortgage lending by banks which contributed to the 2008 global financial crisis.
Lenders have since become better capitalised and introduced more stringent checks on borrowers.
The regulators’ rules define riskier mortgages as those with a loan value above 4.5 times the borrower’s income. The BoE said banks’ unwillingness to risk a breach of the 15% cap on such loans meant individual lenders had stayed well below the threshold, constraining growth of the mortgage market.
Banks’ aggregate share of high loan-to-income lending hit 9.7% in the first quarter, the BoE said, meaning few individual lenders were in any case likely to reach the 15% aggregate sectoral limit.
Allowing some individual lenders to go above that threshold would likely only lead to an overall share of such riskier lending hitting 11% by the end of 2025, the BoE said.
The BoE will also refresh its assessment of banks’ overall capital requirements and update the market on that at its next financial stability report in December, it said, the first such review in five years.
However, the BoE noted that it currently judged the overall level of capital in the system to be “broadly appropriate”.
(Reporting by Lawrence White and David Milliken)
((david.milliken@thomsonreuters.com; +44 20 7513 4034))
Keywords: BRITAIN BOE/MORTGAGES
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