The tension between lending policy intent and market reality is becoming increasingly difficult to ignore. In the following exclusive for Mortgage and Property Investment Magazine, Tom Davies, Group Financial Services Managing Director at Mortgage Scout, part of LRG, highlights a growing disconnect at the broker level, where creditworthy applicants are constrained not by practical affordability but by a framework designed for a very different economic environment, leaving limited structural flexibility despite rising use of exceptions.
The growing disconnect between lending rules and market reality
People are sitting in front of our brokers right now who pay £1,400 a month in rent without difficulty, hold stable professional jobs, and cannot get a mortgage because of where they fall on an income multiple. That is not a credit risk problem. That is a policy problem.
The loan-to-income flow limit was introduced by the Financial Policy Committee in 2014 in the aftermath of the financial crisis. The intent was clear and defensible: to prevent a return to the over-leveraged lending that contributed to systemic risk.
Under the rule, lenders cannot advance more than 15% of their new residential lending at a loan-to-income ratio of 4.5 or above. This is a portfolio-level limit, not a borrower-level hard stop. In theory, lenders can lend at more than 4.5x. In practice, most do not, because exceeding 15% of the book at that level triggers regulatory exposure.
The result is that 4.5x functions as a de facto ceiling for the vast majority of borrowers. In 2014, that made a degree of sense. In 2026, the picture looks very different.
ONS housing affordability data puts the average UK property at approximately 7.6 times median gross earnings. In London, that figure exceeds 12 times.
Even with four consecutive years of improving affordability, driven by wage growth outpacing house price inflation, the structural gap between what 4.5x gets a borrower and what a property costs has widened considerably. 4.5 times the average UK salary does not reach the average UK house price in most of the country.
For buyers in London or across much of the Southeast, it gets them nowhere near. The UK’s house price to income ratio peaked at 9.5 in 2022 and has since improved to a forecast of around 8.2 for 2026, still more than double what economists consider the historically normal ratio of three to four times income. The cap was introduced when the ratio was already elevated. It has stayed fixed while the problem has deepened.
The mortgage market is already signalling that the cap is out of step. Nationwide reported a 57% increase in first-time buyer mortgages taken at or above five times income in 2025 compared with 2024. First-time buyers now account for 54% of all high LTI lending.
Lenders are stretching their criteria because demand exists and, in their assessment, the risk is manageable for the borrowers involved. Nationwide now offers up to 6x income for first-time buyers through its Helping Hand scheme. Some specialist lenders go further. But most high street lenders still cap standard lending at between 4 and 4.49 times income, and the result is a split market: borrowers who know which lenders offer exceptions, and those who do not.
That gap falls disproportionately on first-time buyers who are new to the process. Regulators moved the LTI threshold from £100 million to £150 million in July 2025, and also signalled that individual lenders could exceed the 15% flow limit provided the industry overall stayed within it. That is an invitation to be more flexible. But an invitation is not the same as a framework.
Without a clearer, more pragmatic stance, an increased percentage threshold that lenders can plan against, most will not make full-blooded policy adjustments. The risk of future enforcement is too real. What the market needs is not a nudge toward flexibility but a rule that gives lenders the clarity to act on it.
Our brokers see this every week. A client earning £45,000 a year is capped at roughly £202,500 under the 4.5x rule. The average UK house price sits well above £265,000. In many areas, there is no property available at the lower figure.
The same client pays £1,200 a month in rent, broadly equivalent to the mortgage payment on a £270,000 purchase, and has done so consistently for three years. The risk profile of that borrower is strong by any conventional measure: good employment, a sustained rental payment history, and no adverse credit.
But the rule does not look at the individual. It looks at the multiple. And so the borrower stays in rent, and homeownership stays out of reach. That is not an unusual case. It is a routine one.
The FCA and PRA have shown they are willing to revisit the framework. The July 2025 amendments were a step. But what the market needs is a genuine review of whether 4.5x as a near-universal ceiling remains the right calibration given where house prices sit relative to income.
This is not an argument for removing lending constraints. Responsible for underwriting matters. But a one-size approach applied across a market as varied as the UK, where average house prices range from around £140,000 in parts of the Northeast to well over £500,000 in London, is too blunt an instrument. A review that allows for regional variation, income trajectory, and employment stability would be a meaningful step forward.
Until that happens, we will keep advising clients within the rules, finding lenders whose criteria match their circumstances, and working around a framework that was not designed for this market. But working around it is not the same as it being right.
