Currently lenders are limited by a ‘loan-to-income flow limit’. What this means is that they are allowed to lend over 4.5 income to borrowers, but this can only account for a maximum of 15% of their overall lending.
It means that, in practice, the vast majority of lending cannot be undertaken at these high income multiples.
Now Stuart Haire, chief executive of Skipton Group, along with others, is calling for an increase to the Bank of England Financial Policy Committee’s 15% loan-to-income (LTI) flow limit.
The CEOs of Yorkshire, Nationwide Building Society along with Skipton Groups said there is a need to raise the Bank of England Financial Policy Committee’s 15% high loan to income (LTI) flow limit.
Increasing it would let lenders responsibly support even more first-time buyers, helping more people have a home.
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Skipton believes that the current flow limit, which restricts the proportion of lending above 4.5 times a borrower’s income to just 15%, should be raised to 20%. It said this ‘modest but impactful change’ would deliver meaningful benefits by enabling more first-time buyers to access the housing market. This could also help stimulate economic growth and support the Government’s ambition to deliver 1.5 million new homes.
Last week Skipton announced changes to its lending criteria to make it easier for borrowers to borrow more.
Charlotte Harrison, CEO of Homes at Skipton said: “At Skipton, we continue to recognise the growing affordability challenges facing first-time buyers.
“Adjusting stress rates alone isn’t always enough, as many would-be buyers are still impacted by the limitations the Loan to Income (LTI) cap place on our lending. That’s why we’re taking a more comprehensive approach by revising both, while remaining within the current cap.
“And as a result of the changes we’ve made, loan sizes could increase by up to £45,000 (+16%) for a typical household earning £60k.
“We continue to support calls for a review of the LTI flow limit. In the meantime, as part of our commitment to supporting more first time buyers, we’re making changes to the stress rate, lowering the income requirement to access larger loans, whilst increasing our LTI policy at 95% LTV.
“Increasing the LTI flow limit would enable us to help more first-time buyers have a home, in turn boosting economic growth and supporting the Government’s housebuilding targets.
“Higher LTI lending is subject to the same robust affordability assessments and stress testing as standard lending. Our experience is that customers demonstrate the same if not higher levels of credit worthiness.”
