PS11/25 – Amendments to PRA Rulebook and FCA Guidance on the de minimis threshold for the Loan to Income flow limit in mortgage lending

1: Overview

1.1 This policy statement (PS) is issued jointly by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) (collectively ‘the regulators’). It provides feedback to responses the regulators’ received to the joint consultation paper (CP) 6/25 – Proposed amendments to PRA Rulebook and FCA Guidance on the de minimis threshold for the Loan to Income flow limit in mortgage lending.^{footnote [1]} It also contains the regulators’ final policy, as follows:

• Amendment to the Housing Part of the PRA Rulebook (Appendix 1); and
• FCA Finalised Guidance – FG25/4 (Appendix 2)

1.2 The amendment to the PRA Rulebook in 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 require the above firms to apply the rules at UK subsidiary level to firms not already within scope of the rules.

1.3 The FCA’s general guidance sets out its expectations of those mortgage lenders not caught by the PRA’s rule. This is relevant to FCA-authorised mortgage lenders that are not a subsidiary of the PRA-authorised firms described in paragraph 1.2.

Background

1.4 In November 2024, the FPC recommended to the PRA and FCA that the Loan to Income (LTI) flow limit only apply to lenders that extend residential mortgages with a total value of above £150 million a year, rather than the £100 million threshold set in 2014. The LTI flow limit ensures that mortgage lenders limit the number of new residential mortgage loans made with an LTI ratio at, or greater than, 4.5 to no more than 15% of their total number of new mortgage loans per annum. In May 2025, the regulators consulted on this updated recommendation and proposed to implement it by amending the Housing Part of the PRA Rulebook and the FCA’s General Guidance. The regulators are now making these amendments following the consultation.

1.5 The updated recommendation addresses the impact of inadvertent regulatory tightening due to growth in the UK economy since the threshold was first implemented. It increases the value of residential mortgage lending that small lenders can extend before becoming subject to the LTI flow limit, thereby contributing to the regulators’ secondary objectives on competition, and therefore competitiveness and growth. The regulators’ choice of UK nominal GDP growth as the measure for increasing this threshold captures potential sources of economic growth through real economic growth and inflation, and avoids inadvertent prudential drag.

1.6 Before making any proposed rules, the regulators are required by Financial Services and Markets Act 2000 (FSMA) to have regard to any representations made to them in response to the consultation, and to publish an account, in general terms, of those representations and its feedback to them.^{footnote [2]} In determining their policy, the regulators considered representations received in response to CP6/25. In this PS, the chapter ‘Feedback to responses’ contains a general account of the representations made in response to the CP and the regulators’ feedback.

Summary of responses

1.7 The regulators received four responses to the CP. The names of respondents to the CP who consented to their names being published are set out in Appendix 3; one respondent did not consent to us publishing their name. All respondents were supportive of increasing the de minimis threshold and provided feedback on the policy proposal and other related topics which are set out in Chapter 2.

Changes to draft policy

1.8 In carrying out their policy making functions, the regulators are required to have regard to various matters. In CP6/25, the regulators explained how they had regard to the most relevant of these matters in relation to the proposed policy. The final rules and amendments to general guidance are consistent with those proposed in CP6/25 and therefore the regulators consider the analysis of objectives and ‘have regards’ in CP6/25 with respect to the areas mentioned above remains appropriate.

Implementation

1.9 The rules (set out in Appendix 1) will commence on 11 July 2025. The General Guidance set out in this PS will come into effect on 11 July 2025.

2: Feedback to responses

2.1 This chapter provides feedback to responses to CP6/25. It also sets out the regulators’ final decisions. 

2.2 In CP6/25, the regulators proposed that the LTI flow limit only apply to lenders that extend residential mortgages with a total value of above £150 million a year, rather than the £100 million threshold set in 2014.

2.3 All respondents were supportive of increasing the de minimis threshold, in some cases highlighting the benefits it will provide to smaller lenders and in promoting growth and innovation. Respondents provided feedback on the policy proposal and other related topics. Comments were made in the following areas:

• the calibration of de minimis threshold; and
• the overarching LTI flow limit.

2.4 Having considered feedback and evidence provided by the respondents, the regulators have decided not to make amendments to the proposed rules and guidance. This chapter describes the industry comments and the regulators’ feedback to them.

A. Calibration of the de minimis threshold

2.5 Three respondents suggested that the LTI de minimis threshold should be set at a higher level than proposed in CP6/25. Two of those respondents proposed specific thresholds, of £200 million and £250 million a year respectively. All three of these respondents argued that a higher threshold would enhance competition among smaller, niche lenders and support growth. They further argued that such lenders have a particular role in supporting lending to first-time buyers. One respondent argued that some small and mid-sized lenders above the threshold would be disproportionately affected by the regulatory burden.

2.6 Having considered this response, the regulators have decided not to make changes to level of the de minimis threshold. The value of the proposed threshold was recommended by the Financial Policy Committee (FPC) and the regulators do not propose to implement a different threshold value. The FPC proposed the increase in the de minimis threshold to £150 million to maintain its original risk appetite and ensure that the policy operates in accordance with the original calibration. The FPC issued its recommendation to the regulators on the same terms as the 2014 recommendation and has considered its general duties in reaching this decision. In its November 2024 Financial Policy Committee Record, the FPC reaffirmed its judgement that the LTI flow limit has not significantly reduced mortgage access for first-time buyers. In reaching its decision on the indexation of the de minimis threshold, the FPC considered evidence showing that the lenders that are exempt from the policy are not more likely to lend to first-time buyers than those in scope.

2.7 One respondent queried whether the proposal would make a meaningful contribution to the PRA’s Secondary Competitiveness and Growth Objective, by supporting smaller lenders. One respondent queried how many lenders would be impacted by the proposal. Two respondents pointed to the importance of an ongoing review of the threshold to ensure it remains current.

2.8 The regulators have considered these responses. The proposals will result in the LTI flow limit applying to fewer institutions, particularly small, niche lenders, making the approach more proportionate and thereby having a positive impact on narrow segments of the market. This will marginally contribute to the PRA’s second objective on competition, and in turn competitiveness and growth. Circa 70 lenders are currently exempt from the LTI flow limit; increasing the threshold to £150 million will result in circa 80 lenders benefiting from the exemption. In its November 2024 Record, the FPC proposed to review this threshold regularly to ensure it continued to operate as intended. This provides clarity to smaller lenders on the future approach to the threshold that supports their long-term planning for growth.

2.9 One respondent suggested the de minimis threshold should be removed entirely.

2.10 Eliminating the threshold would result in the LTI flow limit applying to all mortgage lenders. Regulators have considered this response and have decided to retain the de minimis threshold. Regulators consider that the de minimis threshold ensures small firms, and particularly small challenger banks, are not subject to the burden of additional regulatory limits.

B. Overarching LTI flow limit

2.11 Respondents also suggested various amendments to the overall LTI flow limit policy, including:

• removing the flow limit entirely;
• amending the 15% threshold on high LTI lending and calibration of the flow limit, introducing a new combined LTI and loan to value limit;
• introducing a tiered approach to the flow limit’s implementation;
• asking that a change be considered alongside the FCA’s statement on the interest rate ‘stress test’ rule on 7 March 2025; and
• amending its scope of application to introduce an exemption for certain longer fixed rate products.

2.12 Responses regarding the overarching LTI flow limit are outside the scope of this consultation. However, as the FPC indicated in its April 2025 Record that it would consider whether there were any impediments to lenders that wished to use their individual LTI flow limits, all feedback on the overall LTI flow limit will feed into that consideration.