The PRA has published a Policy Statement on amendments to the PRA’s rules on loan to income ratios in mortgage lending – PS11/16. This Prudential Regulation Authority (PRA) policy statement (PS) sets out final rules intended to keep second and subsequent charge mortgage contracts excluded from the loan to income (LTI) flow limit, following the implementation of the Mortgage Credit Directive. It also provides feedback to responses to CP6/16 on amendments to the PRA’s rules on loan to income ratios in mortgage lending.
From 21 March 2016 second and subsequent charge mortgage contracts fell under the definition of a regulated mortgage contract. This change is part of the United Kingdom’s implementation of the Mortgage Credit Directive (MCD), which applies equally to first and subsequent charge mortgages. The PRA’s rules, which implement a Financial Policy Committee (FPC) recommendation, place a loan to income (LTI) flow limit on regulated mortgage contracts. Hence, the implementation of the MCD means that the LTI flow limit would have automatically applied to second and subsequent charge mortgage contracts, which are currently exempted from the LTI flow limit.
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 continue to require the above firms to apply the rules at UK subsidiary level in relation to firms not already caught by the rules.
The PRA statement and the related documents can be found here.