Written on 14 May 2025
The FPC’s determination to suggest a cap of 15% of latest loans for every particular person lender (besides these with complete annual lending lower than £100m – shortly to be elevated to £150m, which represents solely about 2% of complete lending) was taken in 2014 when banks and the mortgage market particularly had been nonetheless recovering from the Global Financial Crisis. It was designed to mitigate perceived macro prudential dangers at the moment however now greater than 10 years later, with banks topic to different strict stress assessments, this 15% rule is properly previous its sell-by date.
Following current FCA steering lenders have relaxed the stress check utilized to debtors, leading to the next most mortgage being accessible, based mostly on affordability.
The apparent consequence of regulators enjoyable the rate of interest stress check is {that a} greater proportion of debtors qualify for a mortgage in extra of 4.5x revenue. Lenders due to this fact now have a fair larger downside than earlier than in deciding which of their potential credit score worthy prospects they need to decline, or supply much less to, to keep away from breaching the 15% restrict.
The Government claims it needs to assist FTBs, however though the 15% rule in principle applies equally to FTBs and movers it is based mostly on the variety of loans, not the whole worth of loans. Therefore lenders have a industrial incentive, in pure monetary phrases, to make use of their 15% restrict for bigger loans, that are much less more likely to be for FTBs, with a view to meet their lending targets.
Despite this some lenders will select to prioritise FTBs for a part of their 15% allowance however the FPC ought to query whether or not a coverage which discriminates in opposition to FTBs is nonetheless applicable.
