The guidance paper from the FCA proposes that the new cap would come into effect on 1st October 2014, with immediate effect, and noted that lenders would need to be aware of its immediate implementation.
The consultation will be particularly relevant to FCA-authorised mortgage lenders with annual residential mortgage lending in excess of £100m, because they should consider what actions could be taken to meet the expectations in the proposed guidance.
The recommendation from the FPC read:
"The PRA and the FCA should ensure that mortgage lenders do not extend more than 15% of their total number of new residential mortgages at loan to income ratios at or greater than 4.5. This recommendation applies to all lenders which extend residential mortgage lending in excess of £100 million per annum. The recommendation should be implemented as soon as is practicable."
The FCA paper said:
"We have considered the FPC’s recommendation and this general guidance sets out what we expect firms to do to be consistent with that recommendation.
"We believe that issuing general guidance, and if appropriate, followed with supervisory action, is the most proportionate way to ensure that firms act in line with the recommendation.
"This measure is not expected to have an impact on mortgage lending and housing transactions in the near term. However, if the underlying strength in the housing market turns out to be greater than expected and the limit bites, the greatest impact is likely to be on first-time buyers, who tend to be younger borrowers, and will tend to apply for higher LTI mortgages, and on single income households."
