FCA issues LTI guidance

The limits, which come into effect in October, stop lenders offering more than 15% of their mortgage books at more than an LTI ratio of 4.5x.

And the FCA’s guidance said that lenders need to be aware of the forthcoming implementation.

The FCA said: "We have considered the FPC’s recommendation and this general guidance sets out what we expect firms to do to be consistent with that recommendation.

"We believe that issuing general guidance, and if appropriate, followed with supervisory action, is the most proportionate way to ensure that firms act in line with the recommendation.”

However the FCA does not expect this to have an impact on future mortgage lending.

It said: "This measure is not expected to have an impact on mortgage lending and housing transactions in the near term.

“However, if the underlying strength in the housing market turns out to be greater than expected and the limit bites, the greatest impact is likely to be on first-time buyers, who tend to be younger borrowers, and will tend to apply for higher LTI mortgages, and on single income households."

And Brian Murphy, head of lending at Mortgage Advice Bureau, said the implementation was expected and that many lenders were already complying.

He said: “The move to limit mortgage lending above 4.5x LTI has been anticipated well in advance by several major lenders.

“Many have already introduced their own measures, meaning that the impact of LTI restrictions will reach the high street far earlier than 1st October and begin to ration the finance that is available to some consumers.

“Individual measures are a clear sign that the mortgage industry is committed to treading carefully – lenders are keen not to delay any action while rising house prices continue to outstrip wage growth.”

But Murphy said the fact that some of these steps go beyond the FPC’s recommendations inevitably means that more borrowers will feel the effects.

He said: “Aspiring first-time buyers and younger homeowners will be among the first who find their borrowing options and buying ambitions are limited, particularly in areas where house prices are rising the most.

“It is crucial that the pendulum doesn’t swing too far towards policies that overrule the careful assessments now in place under the Mortgage Market Review.

“Excessive caution could undo recent efforts to give first-time buyers a helping hand. Lenders should always be mindful of personal circumstances and look at the whole picture, including regional variations in house prices, before shutting the door on potential borrowers.”