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The Financial Conduct Authority’s (FCA) ‘Mortgage Market Review’ regulations are based on the principle that mortgages should only be advanced where there is a reasonable expectation that borrowers can repay. To provide new mortgage loans, all lenders must conduct an affordability assessment which includes a robust income and expenditure analysis, and the lender must obtain evidence of that income to support this assessment. Lenders must also comply with rules set by the Financial Policy Committee (FPC) at the Bank of England, intended to manage financial stability risks from the housing market, including a limit of 15% of new lending above 4.5 Loan-to-Income (LTI), and a stress test for loans at 3% above the Standard Variable Rate.
Both the FCA and the Bank of England keep their mortgage market regulations under review to ensure that they meet their objectives. In May 2016 the FCA conducted a review of the MMR, finding that the regulations had been implemented as desired protecting consumers without unduly restricting the availability of credit. The FCA’s Mortgages Market Study of March 2019 also found that the market is working well for consumers. The FPC most recently reviewed their housing tools in December 2019 in their Financial Stability Report, including the 4.5 LTI cap, finding that they have had a positive impact in upholding strong underwriting standards to prevent an increase in the number of highly indebted households, whilst having only a limited impact on mortgage availability.