PRA and FCA replace high-LTI lender cap with rolling brake

UK mortgage lenders will gain room to write more loans at high income multiples from 28 October, under a final rule that replaces each firm's 15% limit with a market-wide test. The rule published on Wednesday also sets out what happens if lenders collectively push too far: regulators may tell firms above 15% to reduce their excess gradually, measured on a rolling four-quarter basis.

That adjustment mechanism is the important change since the PRA and FCA consultation examined by Clarqo in June. The consultation proposed using a single calendar quarter both to watch the market and to assess each lender's response. The final policy statement, PS19/26 keeps the single-quarter market signal but uses a rolling four-quarter measure for individual lenders and any required adjustment. It is designed to give firms more time to change a mortgage pipeline that cannot be switched off overnight.

Two clocks govern the new limit

The Financial Policy Committee's measure concerns new regulated residential mortgages at or above 4.5 times the borrower's income, or joint income. It recommends that such lending remain consistent with 15% of new mortgages in aggregate. Until now, that recommendation was implemented through a firm-level 15% flow limit, with interim regulatory measures permitting some firms more flexibility. The Bank's July Financial Stability Report said a number of lenders had taken up the interim PRA modification. The final PRA rules and supervisory statement, and replacement FCA guidance for lenders outside the PRA's scope, take effect on 28 October. The interim directions then fall away automatically, the regulators say.

Under the new approach, an individual lender can make more than 15% of its relevant new mortgages at high loan-to-income ratios while the overall market remains consistent with the FPC limit. That is flexibility for a lender with a particular customer mix or risk appetite, not an increase in the FPC's aggregate benchmark. Firms still need lending controls, risk limits and board oversight. The PRA supervisory statement, SS2/26 expects a lender planning to raise its high-LTI share above 15% to discuss risk-management changes through normal supervision.

The PRA has begun publishing the market's high-LTI share for each calendar quarter, calculated from the FCA's Product Sales Data. It also publishes the number of completed mortgages covered by the policy and how that compares with all completions in the quarter. The latest figure, for 2026 Q2, was 14.1% of in-scope mortgages, up from 12.9% in Q1 and 0.9 percentage points below the 15% benchmark. That lending predates the rule's 28 October start. Figures for 2026 Q3 are due during the fourth quarter. The final statement specifies how the brake could operate; the PRA says regulators have set no current expectations for lenders to slow high-LTI lending.

What a lender would have to change

If the PRA and FCA judge the aggregate to be inconsistent with the 15% limit, they may set expectations for lenders whose own high-LTI flow exceeds 15% over four quarters. If adjustment is needed, the PRA will publish how affected lenders should respond. Persistent inconsistency brings additional expectations for lenders above 15%. The reduction rate would be a common fraction of each affected lender's excess above 15%, based on its most recent rolling measure available before the announcement. A lender at 17% and one at 20% would therefore face the same fraction but different percentage-point reductions. The PRA says it will choose the fraction in light of current data, supervisory intelligence and market conditions. No permanent fraction is written into the rule.

Its examples show the arithmetic, not a forecast. At a 17.5% four-quarter share, an illustrative one-sixth reduction in the 2.5 percentage points above 15% produces a future target near 17.1%. The next step applies the fraction to the smaller remaining excess. A sharper aggregate problem could lead to a larger fraction. These expectations apply to future lending decisions, and the PRA says lenders are not expected to withdraw mortgage offers already approved. The PRA says expected reductions in individual flow measures may not be accurately reflected in data until six subsequent quarters have passed after an announcement.

Smaller firms below the policy's de minimis threshold are outside the specific aggregate-monitoring and adjustment expectations in the supervisory statement. Firms above that threshold would need the capacity to reduce future high-LTI lending if asked. That makes governance and pipeline information more important: a lender may have to adjust its offers before the completed-loan figures visibly respond. The regulator can withdraw adjustment expectations when it judges the aggregate consistent with the limit again.

The policy does not decide how many additional first-time buyers will receive a mortgage. The PRA and FCA say greater lender flexibility may improve competition and home ownership, noting that first-time buyers accounted for a larger share of high-LTI lending in the second quarter of 2025. That is a regulatory expectation, not a measured benefit from the rule taking effect later this month. Each lender's affordability checks and credit decisions still apply, and an aggregate signal could bring the new flexibility back under restraint.

Nor should a different FCA statistic be used as a shortcut to declare the FPC limit breached. The FCA's Mortgage Lending and Administration Return series calls loans high-LTI at four times income for single borrowers and three times joint income. Its published share also concerns a different reporting series. The FPC measure in this policy starts at 4.5 times individual or joint income and uses in-scope completed mortgages in Product Sales Data. The two percentages answer different questions.

The next test is the PRA's update for 2026 Q3 and the associated coverage figures. That update will provide another pre-start reading, since the rule begins on 28 October. Only later lender flows and borrower outcomes can show whether the rolling brake changes competition or access in practice.