“And so from my perspective, I think the question is, is it set at the right level? But then secondly, do we need it at all if the regulator can get comfort that there is enough sophistication in terms of how lenders are assessing affordability?”
No better alternatives?
IMLA has also described the LTI flow limit in its current form as an “imprecise” instrument, and that it excludes too many prudent borrowers.
But Andrew Wishart, a senior economist at Capital Economics, suggests that a more precise measure may not be a better alternative.
Citing the FPC’s now-withdrawn interest rate stress test, he says: “When they had a less blunt tool of the affordability stress test, it worked against them in a way, because it was designed for when rates were at cyclical lows. And then when rates were rising it would have ended up being a very big binding constraint.”
Another factor to consider is the impact that any loosening of the LTI flow limit may have on house prices.
While Nationwide has called for an increase in higher loan-to-income lending, the building society’s director of home, Henry Jordan, acknowledges that doing so in isolation may be another trigger for house price inflation.
He says: “It really needs to be done as part of that wider review that we, the BSA and others have called for, in terms of a full review of support for first-time buyers, and the housing market more broadly, to make sure that both supply and demand measures are addressed.”
Chloe Cheung is a senior features writer at FT Adviser
