LTI cap ‘should be looked at again’ in review, Accord Mortgages Duncombe says
A review into the loan to income (LTI) cap should be done by the regulator to examine whether it is still fit for purpose, said Jeremy Duncombe, director of mortgage distribution at Yorkshire Building Society and managing director at Accord Mortgages.
Speaking in the second part of a four-part video series, Duncombe said that the LTI cap was “definitely a challenge” as lenders have had a “hard stop” as they cannot lend more than 15% of their book at more than 4.5 times income.
“Lenders play cautiously to make sure they don’t reach that cap because if you do reach it you end up in a position that nobody wants to be in with things like pulling offers. It’s a really strict cap,” he said.
Duncombe added that lenders play below the 15% and are unlikely to exceed 13% of their book on more than 4.5 times income.
He continued that it was the “right question to be asking” in terms of asking for a review of the LTI cap.
“We’ve got to be responsible, we’ve got to be prudent and we don’t want to go back to a period where there are no rules. It has stood us in really good stead, especially in terms of arrears still being low, which is because of the prudent rules that were put in place after the credit crunch,” Duncombe said.
He continued that it was “absolutely critical” that measures were in place but it was time for the income cap to be reviewed as interest rates begin to drop later this year.
“We should be looking again at affordability, things like LTI caps, in the past where rates are likely to go up it’s understandable why those caps and limits are in place but in a market where rates are coming down there have to be some other options, so I agree it should be looked at again.
“Let’s do this prudently and still make sure the market functions effectively but I think there is room to have that debate and I hope they [the regulator] will listen,” Duncombe said.
LTI cap review could be a ‘small nudge’ on affordability
Vikki Jefferies, proposition director at Primis, added that it was interesting to note that lenders were operating below the LTI cap of 15% of lending being more than 4.5 times income, so “a small nudge or a slight review could make quite a big difference”.
“I think we should continue to push for a review, but we’re not looking to go back to any of the old days and some of the practices that we had in the past. It’s just a prudent approach,” she added.
Jefferies continued that the overall impact of a review, as part of a series of “small nudges”, could be “quite significant”.
David Hollingworth, associate director of communications at L&C, reiterated that the mortgage market was “not going to go back to the pre-credit crunch days”.
“I think affordability is a central plank of the problems for first-time buyers at the moment. We’ve talked about deposit but actually affordability is a crucial issue, so giving lenders a bit more flexibility, I think would be really helpful.
“All too often I think the higher income multiples might be directed at those with higher incomes and we’ve got to look at how we might be able to broaden that out for first-time buyers,” he said.
Hollingworth said some lenders had looked at how they can stress more favourably for this cohort to give them a “boost to their borrowing power”.
“If we could get to a point, and I don’t think it’ll happen quickly I’m afraid, because I think the removal of that prescriptive stress requirement will probably mean the LTI will take longer to feed through, but we should keep talking because affordability is such a big deal for first-time buyers in particular,” he concluded.
Watch the 8:18 video, hosted by Victoria Hartley, contributing editor at AE3 Media, with Jeremy Duncombe, director of mortgage distribution at Yorkshire Building Society and managing director at Accord Mortgages, David Hollingworth, associate director of communications at L&C Mortgages, and Vikki Jefferies, proposition director at Primis. This is the second of a four-part video series.
To see the first video please follow this link.
Anna is currently the deputy editor for Mortgage Solutions and editor for Specialist Lending Solutions. She has worked as a journalist since 2019, having secured her Gold Standard NCTJ diploma from News Associates in a fast-track six-month course.
She started her career as a report at specialist publication The Insurance Insider covering a wide range of areas before joining Mortgage Solutions and Specialist Lending Solutions in 2021.
In her role, she helps put together and structure the news agenda for the day and writes up press releases, reports, interviews, analyses and exclusives across both titles. She also commissions blogs for Specialist Lending Solutions and hosts online masterclasses and in-person events across the business.
She has been shortlisted for three journalism awards, which include BIBA Journalist and Media Awards Scoop of Year Award in 2020, Headline Money Mortgage Journalist of the Year Award (B2B) in 2022 and 2023.
Prior to being a journalist, Anna worked in ecommerce across Snow + Rock, Cycle Surgery and Runners Need websites, and before that worked at specialist financial PR firm Rostrum.
In her spare time, Anna enjoys reading, seeing live music, and cooking for friends and family. When she gets a chance, she also enjoys hiking, skiing and indoor rock climbing.
