The City watchdog might be about to relax rules on mortgage lending that are tripping up smaller lenders

Hayley Kirton
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Mortgage lending does not stay the same year round, and that's creating a problem (Source: Getty)

The City watchdog has today launched a consultation to further pick over the rules on how it checks firms are not allowing people to borrow too much on a mortgage compared to their income.

The Financial Conduct Authority (FCA) is asking for feedback on proposed amendments to its previous 2014 guidance based on recommendations from the Bank of England's Financial Policy Committee (FPC).

In particular, the FCA is looking at whether quarterly tests for measuring loan to income ratios should be moved from a fixed to a rolling measurement.

Back in 2014, the FPC proposed a loan to income ratio cap of 4.5 times a person's income. Although firms can lend more than this, no more than 15 per cent of loans per quarter are allowed to breach this limit.

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The watchdog is wary that the current measures could be making life harder for mortgage lenders, particularly smaller firms, trying to manage their business pipeline, particularly as mortgage applications do not take place at a constant pace throughout the year.

The FCA's consultation is open for feedback until 10 January 2017, with final guidance expected to be published next spring.

The consultation marks the latest in a string of moves to fine tune the mortgage market following the financial crisis. Earlier this month, the Treasury announced it was handing the FPC further powers to oversee and regulate the buy to let market, which would come into force in 2017. The FPC was formally handed these powers for the residential market in 2015.

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