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FPC under pressure to review LTI cap

Trade bodies have urged the Financial Policy Committee to review its loan-to-value cap over fears of a “domino effect”, where more lenders introduce their own caps.

In October, the FPC, which is a Bank of England committee tasked with ensuring financial stability, limited lending of over 4.5 times income to no more than 15 per cent of new loans.

The cap was brought in due to fears the housing market was getting overheated and to stop borrowers becoming over-indebted.

It led to several lenders introducing their own caps. Lloyds and RBS limit loans to 4.5 times income for loans at £500,000 or more, while Barclays has a blanket 4.5 times income cap for all loans. TSB followed Barclays’ lead last week. Aldermore has a 4.5 times income cap on loans over 85 per cent LTV.

Ami chief executive Robert Sinclair says: “There is clearly a risk that the fear of regulatory pressure will lead to a domino effect among lenders and we see a market-wide cap on LTI ratios. Nobody wants to see a homogenised mortgage market with everyone placing the same restrictions as each other, so the committee should review this now.”

Intermediary Mortgage Lenders’ Association chairman Charles Haresnape says: “We are reaching the point now where the committee should be reviewing it, but I would imagine they will wait until after the election to see how the housing market reacts to the outcome.”

The FPC has said it will “continue to consider whether the LTI cap remains appropriate”.


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