Looking Behind The Headlines: Are Banks Increasing Riskier Lending?
On July 9, 2025, the Bank of England (BoE) announced recommendations for banks and building societies to issue more mortgages at a higher loan-to-income (LTI) ratio. This led to clickbait headlines all over the news claiming that all UK banks will be increasing riskier mortgage lending, giving prospective borrowers false hope that it will be easier for them to secure a mortgage and that they’ll be able to make their budgets stretch to afford a more expensive property. Our latest blog debunks the headlines and tells you what the Bank of England’s announcement really means.
What Did The Bank of England Say?
The announcement came in support of the government’s focus on making home ownership more accessible to everyone after looking at how regulatory mortgage policies influence lending.
In light of this, the BoE’s Financial Policy Committee made recommendations to the Prudential Regulation Authority (PRA) that regulates the banks that individual lenders should be able to increase their share of lending at high LTIs to above the current 15% limit*. However, it was sure to caveat this by saying that although individual lenders can increase the proportion of high LTIs, the overall share of high LTI mortgages should not exceed 15% across the sector.
What Is A High Loan-To-Income Ratio?
Riskier, high loan-to-income mortgages are those with a loan value of more than 4.5 times a borrower’s income. The limit on how much high LTI lending banks could do came into effect in 2014 as part of regulations that came into place after the 2008 global financial crisis to protect lenders and consumers.
What Is The Truth?
So, does the BoE’s recommendation that individual lenders can increase their share of risky lending to above the 15% threshold mean that more people will get access to bigger mortgages? Not exactly.
The amount of money lenders will allow you to borrow depends on a range of factors, including your income, other committed spending, current debt, and how much deposit you have. Ultimately, lenders will still have to be confident that you will be able to pay back the mortgage over the term, so they won’t be offering you five or six times your income if there are doubts that you won’t be able to make the repayments down the line.
What Is Risk When It Comes To Mortgage Lending?
Mortgage lenders must weigh up the risk of lending before approving borrowers for a mortgage. They must take into account the following:
- Loan-to-income ratio – How many more times their income a person can borrow. Most lenders cap mortgages at 4.5 times a person’s income as they want to be sure they can pay the money back over the mortgage term.
- Loan-to-value (LTV) ratio – This is the amount of the mortgage loan compared to the value of the property. For example, if you are buying a property for £250,000 with a £50,000 deposit, you’ll need a £200,000 mortgage, which will put the LTV at 80%. The higher your LTV, the greater the risk it is for lenders because they have less collateral securing the loan. If you were only putting down a 5% deposit, it would be considered higher risk than a 20% deposit.
- Credit score – Lending to someone with a poor credit score may be considered more risky for lenders.
There Are Other Mortgage Options Out There
While the BoE has said that individual lenders can increase the proportion of risky mortgage lending, the sector as a whole must not exceed a total share of 15% risky lending. As banks and lenders must carry out due diligence to ensure that any borrower is suitable for their products and can afford to pay them back, it is unlikely that this so-called ‘rise’ in risky lending will allow a huge number of people to borrow more. It certainly doesn’t mean that banks will let people borrow beyond their means, as the same affordability checks and regulations apply.
If this has left you feeling disheartened, don’t worry because there are ways that banks can still help you get a foot on the property ladder with their current products. The introduction of 100% mortgages can help those who don’t have the means to save up for hefty deposits. Other lenders have even started to implement deferred payment periods of up to three months to make the initial costs of moving more affordable.
To discuss what options might be available to you, get in touch with our friendly and professional team today.
