UK Scraps Individual Mortgage Lending Cap While Keeping Overall Limit at 15%
Key Facts
The UK’s Prudential Regulation Authority and Financial Conduct Authority have removed the cap on high loan-to-income mortgage lending for individual lenders, while retaining an overall target of 15%, in a change that took effect on October 28, 2026. The new policy gives lenders greater flexibility in allocating loans that exceed the specified borrowing threshold, while the recommended overall limit remains in place across the market. The regulators said they had decided to "proceed with removing the firm-level cap, while seeking to keep the aggregate consistent with the 15% limit." This means the change lifts the restriction on each individual institution but does not remove the aggregate control aimed at limiting the expansion of this type of lending. The move comes as house price growth slows and purchase approvals decline, while the cost of new mortgages edges up slightly.
A loan is classified as high loan-to-income when it reaches or exceeds 4.5 times the borrower’s income, whether the loan is for an individual or for people applying jointly. The previous cap limited the share of loans each lender could issue in this category to 15%; the new policy removes this individual restriction and retains the recommended overall limit at 15%. If aggregate lending becomes inconsistent with the Financial Policy Committee’s limit, regulators may expect firms to gradually reduce their share towards 15%. But they said there are currently no expectations for firms to reduce the flow of high loan-to-income lending. This approach separates lenders’ operational flexibility from oversight of total lending in the market, while allowing for gradual intervention if the aggregate exceeds the target level.
High loan-to-income lending accounted for 14.1% of loans covered by the policy in the second quarter of 2026, up from 12.9% in the first quarter, bringing it close to the overall limit of 15%. First-time buyers were the clearest driver of this type of lending, with their share rising to 18.1% in the second quarter, compared with 16.4% in the previous quarter. For other loans, high loan-to-income lending accounted for 10.9% in the second quarter. Regulators believe greater flexibility could boost use of the overall limit and competition, and could increase home ownership as first-time buyers make up a larger share of high loan-to-income lending. The regulators received 15 responses to the consultation paper before adopting the final policy.
The regulatory changes coincide with weaker indicators in the housing market. Annual house price growth slowed to 0.5% in October, from 0.8% in September, its weakest rate since January 2024; prices were unchanged month on month after seasonal adjustment. Net approvals for house purchases fell to 53,400 in September, from 54,800 in August, and were below an average of about 58,800 over the previous six months. The effective interest rate on newly drawn mortgages rose to 4.63% in September, compared with 4.60% in August. Slower price growth thus coincided with approvals below both the previous month’s level and their six-month average, alongside a slight increase in borrowing costs.
Nationwide attributed the slowdown in market activity and price growth partly to economic uncertainty, saying that "market activity and house price growth have slowed in recent months, partly reflecting economic uncertainty." Its chief economist added that geopolitical tensions and the conflict in the Middle East were pushing energy prices higher and fuelling inflation concerns. In his view, market expectations of an increase in the Bank Rate had added to upward pressure on market rates that affect mortgage pricing. Forward-looking indicators also pointed to the possibility of continued weakness in the market in the near term, with new buyer enquiries remaining weak and consumer confidence falling in October. The Bank of England’s Bank Rate stands at 3.75% as of October 31, 2026.
The Prudential Regulation Authority is due to publish data on aggregate high loan-to-income lending flows for the third quarter of 2026 during the fourth quarter, along with supporting information. The regular data are expected to provide an indication of how consistent lending is with the overall limit of 15% after the new rules took effect. The next Bank Rate decision is scheduled for November 5, 2026, when the Bank of England will also publish its November Monetary Policy Report, together with a summary and minutes of the Monetary Policy Committee meeting. The report is scheduled for release at 12 noon. This follows the start of the new rules in late October, while approvals, house prices and borrowing costs remain indicators of the state of the housing market.