Amendments to the PRA's rule on loan to income ratios in mortgage lending

Policy Statement 11/16  |  Consultation Paper 6/16

Published on 24 March 2016

Amendments to the PRA’s rules on loan to income ratios in mortgage lending – PS11/16

This Prudential Regulation Authority (PRA) policy statement (PS) sets out final rules intended to keep second and subsequent charge mortgage contracts excluded from the loan to income (LTI) flow limit, following the implementation of the Mortgage Credit Directive. It also provides feedback to responses to CP6/16 on amendments to the PRA’s rules on loan to income ratios in mortgage lending. 

From 21 March 2016 second and subsequent charge mortgage contracts fell under the definition of a regulated mortgage contract. This change is part of the United Kingdom’s implementation of the Mortgage Credit Directive (MCD), which applies equally to first and subsequent charge mortgages. The PRA’s rules, which implement a Financial Policy Committee (FPC) recommendation, place a loan to income (LTI) flow limit on regulated mortgage contracts. Hence, the implementation of the MCD means that the LTI flow limit would have automatically applied to second and subsequent charge mortgage contracts, which are currently exempted from the LTI flow limit.

This PS is relevant to banks, building societies, friendly societies, industrial and provident societies, credit unions, PRA-designated investment firms, and overseas banks in relation to their UK branch activities. The rules also continue to require the above firms to apply the rules at UK subsidiary level in relation to firms not already caught by the rules.

PDF Policy Statement 11/16

Appendix 1

PDF PRA Rulebook: CRR Firms, Non-CRR Firms: Housing Instrument 2016  

 


Published on 15 February 2016

Amendments to the PRA’s rule on loan to income ratios in mortgage lending – CP6/16

Background

In this consultation paper (CP), the Prudential Regulation Authority (PRA) sets out its proposals for amendments to the Housing Part of the PRA Rulebook in respect of second and subsequent charge mortgage contracts.

From 21 March 2016 second and subsequent charge mortgage contracts will fall under the definition of a regulated mortgage contract. This change is part of the United Kingdom’s implementation of the Mortgage Credit Directive (MCD), which applies equally to first and subsequent charge mortgages. The PRA’s rules, which implement a Financial Policy Committee (FPC) recommendation, place a loan to income (LTI) flow limit on regulated mortgage contracts. Hence, the implementation of the MCD means that the LTI flow limit would automatically apply to second and subsequent charge mortgage contracts, which are currently exempted from the LTI flow limit.

Proposals

This CP proposes to amend the PRA’s rules to maintain the PRA’s current policy of excluding such second and subsequent charge mortgage contacts from the LTI limit, with the intention to consult subsequently on including these loans in the LTI flow limit when loan level data becomes available in the course of 2017. The PRA will continue to work together with the Financial Conduct Authority to keep the size of the second and subsequent charge mortgage market under review. 

In addition, the FPC has stated its intention to keep its recommendation under review.

This CP is relevant to banks, building societies, friendly societies, industrial and provident societies, credit unions, PRA-designated investment firms, and overseas banks in relation to their UK branch activities. The rules also require the above firms to apply the rules at UK subsidiary level in relation to firms not already caught by the rules.

Response

The consultation period closed on Friday 11 March 2016.
 
PDFConsultation Paper 6/16

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