Niche lenders gain LTI cap exemption

In June the Bank of England set a loan to income ratio limit for new mortgages, allowing no more than 15% of residential mortgages to be above an LTI ratio of 4.5.

But the Council of Mortgage Lenders lobbied hard, arguing that high net worth lending was different to the mainstream mortgage market, making the 15% limit inappropriate for niche lenders.

Paul Smee, CML director general, said: “We are pleased that the PRA listened to the CML and other organisations who argued that the high loan to income lending limit was anomalous for niche lenders in the high net worth lending market.

“While it is not yet entirely clear how this approach will affect individual lenders, it is a clear improvement on the original implementation proposal.”

For the cap to apply lenders are also required to lend at least £100m per year.

Adrian Anderson, director of Mayfair-based mortgage broker Anderson Harris, said: “This is encouraging news as these niche lenders specialise in providing bespoke lending solutions to wealthy clients who typically have unusual and complex circumstances, often with low incomes but strong asset bases.

“It will come as a huge relief to the private banking fraternity who were already frustrated by the rigours of the Mortgage Market Review.”

Mark Harris, chief executive of SPF Private Clients, added: “This decision returns the flexibility to lenders that they have enjoyed in the past and is important because generally speaking wealthier borrowers can afford greater income multiples.

“The smaller private banks who do fewer than 300 cases a year will be delighted at the decision while the bigger private banks such as Coutts and Barclays Wealth who are part of a group will be able to take the 15% allocation for the whole group.

“However, there may be some large-ish private banks who do more than 300 cases a year but aren’t part of a big group who could find themselves at a disadvantage.”

But Stephen Smith, director of Legal and General Mortgage Club and Housing, said: “MMR was meant to move away from blunt income multiples towards an affordability based model. From our conversations with lenders, aside from pockets of London and the South East most are not at their loan to income limit at the moment.

“As a result there is unlikely to be an immediate impact on mortgage lending outside those areas.

“We may see an impact in the future though especially if house price rises continue to outstrip the rate of wage increases.”