Skipton Building Society has announced a series of enhancements to its lending criteria, alongside a call for an increase to the Bank of England Financial Policy Committee’s 15% loan-to-income (LTI) flow limit.
The Society has reduced its residential stress rate for shorter-term products. Customers taking a mortgage with a product term under five years will now benefit from a lower stress rate, meaning shorter terms will no longer negatively affect borrowing potential.
Skipton has also introduced a lower income threshold for higher LTIs. The minimum income required to access a 5.5x LTI has been halved from £100,000 to £50,000, opening up greater borrowing potential to a wider group of customers.
The lender has also increased the maximum LTI for higher LTV lending. For customers with an LTV between 90.01% and 95%, the maximum LTI has been increased from 4.75 to 5, provided the household income exceeds £50,000.
Call to raise 15% LTI flow limit
Following a session with the Treasury Select Committee, Skipton Group’s CEO Stuart Haire, along with CEOs from Yorkshire Building Society and Nationwide, have jointly written to Dame Meg Hillier MP, chair of the Committee, to underline the need to raise the Bank of England Financial Policy Committee’s 15% LTI flow limit.
This limit caps how much mortgage lending can be provided at more than 4.5 times a borrower’s income.
Skipton believes that the current flow limit, which restricts the proportion of lending above 4.5 times a borrower's income to just 15%, should be raised to 20%.
The Society stated: "This modest but impactful change would deliver meaningful societal benefits by enabling more first-time buyers to access the housing market. In turn, this could help stimulate economic growth and support the Government’s ambition to deliver 1.5 million new homes.
"An increase in the LTI flow cap would also align with the Government’s commitment to double the size of the mutual and co-operative sector, as building societies increasingly focus on serving customers who benefit from this type of lending."
Charlotte Harrison, CEO of Homes at Skipton, commented: “At Skipton, we continue to recognise the growing affordability challenges facing first-time buyers.
“Adjusting stress rates alone isn’t always enough, as many would-be buyers are still impacted by the limitations the LTI cap place on our lending. That’s why we’re taking a more comprehensive approach by revising both, while remaining within the current cap.
“And as a result of the changes we’ve made, loan sizes could increase by up to £45,000 (+16%) for a typical household earning £60,000.
“We continue to support calls for a review of the LTI flow limit. In the meantime, as part of our commitment to supporting more first-time buyers, we’re making changes to the stress rate, lowering the income requirement to access larger loans, whilst increasing our LTI policy at 95% LTV.
“Increasing the LTI flow limit would enable us to help more first-time buyers have a home, in turn boosting economic growth and supporting the Government’s housebuilding targets.
“Higher LTI lending is subject to the same robust affordability assessments and stress testing as standard lending. Our experience is that customers demonstrate the same if not higher levels of credit worthiness.”
