The Bank of England is exploring one of the biggest reforms of its mortgage rules in more than a decade. Its Financial Policy Committee is examining a higher threshold for what counts as a higher-risk mortgage, under pressure from lenders and the government.
The Bank of England is exploring one of the biggest reforms of its mortgage rules in more than a decade, according to the Financial Times. The move would respond to calls from the government and industry to boost home-ownership, and could open the door to a surge in riskier lending.
The threshold under review
Since 2014, most UK lenders have been barred from handing out more than 15% of mortgages to people borrowing more than 4.5 times their income. In July 2025, the BoE eased these rules, which prompted a jump in mortgages at higher loan-to-income ratios.
Now the Financial Policy Committee is examining going further by raising the threshold for a higher-risk mortgage from 4.5 times household income to five-times. The lobby group UK Finance estimated that such a shift could free up extra lending capacity equivalent to 7% of new residential mortgages, which last year totalled about £200bn.
Government and lenders push for change
Chancellor John Healey backed the industry push this week in a letter to BoE governor Andrew Bailey. He asked the committee to consider how the loan-to-income framework can better support access to home ownership. The BoE told the FT that it keeps its housing tools under regular review.
Lenders deny the change would bring extra risks. UK Finance calculated that mortgages issued at between 4.5 times and five times household income have had lower arrears than those issued at less than 4.5 times over the past decade.
Limit is close to being reached
The 2025 changes lifted lending in some areas. The number of first-time mortgages with a loan-to-income ratio of 4.5 or above hit 45,800 last year, up 66% from 2024, according to Financial Conduct Authority data.
However, the sector is getting close to hitting the 15% aggregate limit. Mortgages above the 4.5 times threshold rose from 11.8% of the overall market in the fourth quarter of 2025 to 14.1% in the third quarter of this year.
Source: Financial Times
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