High Loan-to-Income Lending - FCA & PRA Consult on New LTI Framework

The PRA and FCA published CP6/26 on 1 April 2026, consulting on a permanent framework for high loan-to-income (LTI) mortgage lending following the Financial Policy Committee's (FPC) recommendation to allow individual lenders to exceed the 15% LTI flow limit. The consultation closes on 1 July 2026 with implementation expected in H2 2026.

Context:

The Financial Policy Committee's (FPC) 15% LTI flow limit restricts the share of new mortgages at LTI ratios of 4.5x or more to no more than 15% of a lender's new lending has been in place since 2014. Following FPC recommendations and HM Treasury's mortgage market reform programme, the PRA and FCA have been operating interim measures that allow individual lenders to receive case-by-case Model by Case (MbC) modifications to their LTI limits, enabling greater flexibility without abandoning the macro-prudential framework.

CP6/26 proposes to replace these interim arrangements with a permanent framework. The proposals seek to provide lenders with clear, predictable rules for how they can request and operate permissions to lend at higher LTI ratios for specific borrower segments, while maintaining robust governance, risk management, and supervisory oversight. The consultation builds on extensive engagement with the mortgage market through the FCA's Mortgage Rule Review, including work on first-time buyers, affordability stress tests, and responsible lending and reflects the FPC's view that the 15% limit should remain as a macro-prudential anchor while individual lender flexibility is provided through a structured permission framework.

The implementation date is expected to be H2 2026, with the interim measures extended to 31 December 2026 as a backstop. The regulators have extended the interim MbC and FCA individual guidance mechanisms to allow firms time to transition to the new framework without interruption to their lending operations.

Rules and Guidelines:

• The 15% LTI flow limit (FPC recommendation) is maintained as the macro-prudential anchor, no aggregate relaxation of the FPC's recommendation is proposed

• New permanent framework allows firms to apply for a PRA permission to exceed the 15% limit for specific borrower segments, subject to governance and risk management conditions

• Firms operating under the new permission must provide the PRA with details of any material changes to their business plan, risk appetite, and risk management framework in respect of high LTI lending

• New draft supervisory statement on high LTI lending (Appendix 3) sets out governance expectations, risk management requirements, and reporting obligations for firms with high LTI permissions

• The FCA is publishing updated general guidance (FG26/X) replacing FG25/4 on the FPC's LTI recommendation, to be consulted upon alongside the PRA's proposals

• Interim PRA MbC measures and FCA individual guidance extended to 31 December 2026 (backstop) or until the new framework comes into force

• Implementation expected H2 2026; consultation closes 1 July 2026

Businesses Affected:

• All PRA-regulated mortgage lenders (banks and building societies) — particularly those currently operating under interim MbC measures or considering applications for high LTI flexibility

• Building societies with significant first-time buyer books, high LTI lending is often concentrated in this segment, and the new framework may enable more systematic programme design

• Challenger banks and specialist mortgage lenders seeking to expand lending to underserved borrowers (self-employed, older borrowers, shared ownership) who may benefit from targeted LTI flexibility

• Mortgage operations, credit risk, and capital management teams who must redesign lending processes, governance frameworks, and documentation under the new permission structure

• The FCA's mortgage market reform programme. This consultation is closely linked to the broader Mortgage Rule Review and the terms of reference for the later life mortgages market study (MS26/1)

Next Steps:

• Respond to CP6/26 by 1 July 2026. The regulators are specifically seeking views on whether the proposed governance and risk management framework achieves the right balance between flexibility and prudential safeguards

• Firms currently operating under interim MbC measures should assess whether their arrangements will transition smoothly into the new permanent framework and identify any compliance gaps

• Firms planning to apply for a high LTI permission under the new framework should begin drafting their governance and risk management documentation against the draft supervisory statement requirements

• Credit risk and capital teams should model the impact of the new LTI framework on lending volumes, capital requirements, and impairment expectations under various economic scenarios

• Engage with the FCA's updated general guidance (FG26/X) alongside the PRA consultation to ensure a consistent understanding of the combined regulatory framework

• Board and risk committee briefings should be updated to reflect the forthcoming permanent framework and the strategic implications for lending appetite and product design

Source | Prudential Regulation Authority, LTI Framework Consultation Paper