Removal of LTI limit could help first-time buyers overcome affordability hurdles

28 September 2022

The removal of the Loan to Income (LTI) flow limit is one measure that could help thousands of first-time buyers overcome affordability hurdles in purchasing their first home.

This is according to data analysis by Mortgage Broker Tools (MBT), which has reviewed tens of thousands of mortgage enquiries for first-time buyers that have been processed through the research platform, MBT Affordability.

Currently, the Bank of England imposes an LTI flow limit on lenders, which limits the number of mortgages that can be extended at LTI ratios at or above 4.5 to 15% of a lender’s new mortgage lending. In August, the Bank of England scrapped its mandatory 3% stress test recommendation as part of affordability calculations, but the LTI flow limit was not reviewed as part of the consultation.

Data analysis by MBT has found that, this year, more than half (54%) of first-time buyers have asked for a loan size where the LTI is above 4.5 and, of these, 58% of cases were considered to be affordable. In addition, the majority of these applicants were able to demonstrate the affordability required to borrow a loan size at least 10% larger than the loan they had requested.

Tanya Toumadj, CEO at Mortgage Broker Tools, said:

“The plight of first-time buyers has been well publicised, with continued house price inflation over recent years making it harder for hopeful homeowners to save a deposit and demonstrate affordability.

“Lenders are increasingly taking a data-driven approach to assessing affordability and the recent removal of the mandatory 3% stress test, will give them some room to innovate and develop new products that could help first-time buyers and home movers.

“Our data shows that the removal of the LTI flow cap that is currently imposed on lenders is one option that could make home ownership more accessible to first-time buyers, many of whom are otherwise able to demonstrate good affordability.

“There is clearly a lot of demand for this approach from customers. Our data shows that more than half have requested a loan size larger than 4.5 times LTI and for most of these (58%) there was a lender able to provide the loan size they requested. However, simply removing the LTI flow limit may not be the right option, particularly in the current environment.

“Mortgage affordability is a complex balancing act that needs to consider multiple factors to deliver an outcome that remains robust and responsible without unduly restricting customer options. This approach requires data and at MBT, we are already working with lenders to help them take a more data-driven approach to mortgage affordability.”