Islay Robinson explores the Bank of England’s reported proposal to raise the high mortgage lending threshold from 4.5 to five times income, examining what it could mean for borrowing capacity, affordability and high-value property buyers.

The Bank of England's Financial Policy Committee is considering raising the threshold that defines a high loan-to-income mortgage from 4.5 times household income to five times, according to a Financial Times report published on 31 October and subsequently reported by Estate Agent Today. No decision or timetable has been announced.

Currently, a mortgage is classified as high loan-to-income lending when the amount borrowed is 4.5 times or more the borrower's individual or joint household income. The Financial Policy Committee has recommended that high loan-to-income mortgages account for no more than 15% of new residential lending across the market.

High loan-to-income lending represented approximately 14.1% of new residential lending in the most recent quarter, according to Financial Policy Committee data, compared with an average of 12% over the previous year. UK Finance estimates that moving the threshold to five times income could create additional lending capacity equivalent to around 7% of annual new residential mortgage lending.

The reported review follows pressure from lenders and the Chancellor, John Healey. UK Finance has also argued that loans between 4.5 and five times income have experienced lower arrears than those below the 4.5-times threshold. However, lenders would still be required to assess affordability and apply their own lending criteria.

What Would a Five-Times-Income Mortgage Threshold Mean?

Consider a household with a combined annual income of £200,000.

At 4.5 times income, a mortgage of £900,000 reaches the current high loan-to-income threshold. If that threshold were increased to five times income, the equivalent figure would become £1 million.

This is an illustration of how the proposed change could affect the regulatory threshold, not an indication of what a lender would be prepared to offer. Actual borrowing would depend on affordability, credit history, existing commitments, deposit size and individual lender criteria.

The change would matter most to borrowers whose required mortgage sits close to the existing threshold. It could give lenders more flexibility to consider applications that currently fall within the high loan-to-income category.

Why Is the Bank of England Reviewing the Threshold?

I wrote on 15 October that the argument for moving towards five times income was likely to return, and it has.

I would keep two things separate: the regulator's definition of high loan-to-income lending and the amount an individual lender is prepared to offer. The threshold determines which mortgages count towards the market-wide limit. It does not instruct lenders to increase borrowing, and each lender will continue to apply its own affordability assessments, criteria and risk appetite.

There is also a wider question about whether allowing people to borrow more actually improves affordability. One property commentator has warned that increasing mortgage availability does not solve the underlying affordability problem and could put further pressure on property prices. I think that is a legitimate concern for the Committee to consider.

With annual house price growth at 0.5% in October, according to Nationwide, this is not necessarily an immediate concern, but the wider consequences of loosening lending restrictions should not be overlooked. I would not plan a property purchase around a proposal that has not been approved.

Would Higher Interest Rates Offset the Benefit?

There is an important timing consideration. The Bank of England announced its latest Bank Rate decision on 5 November, less than a week after the report about the proposed lending threshold.

The two decisions are connected only loosely, but they matter to the same borrower. A higher interest rate makes a larger mortgage more expensive to service. The amount a lender is permitted to consider under its lending criteria is not necessarily the amount a borrower can comfortably afford.

A higher income multiple could therefore have less impact than it first appears if mortgage rates remain elevated. Borrowers still need to demonstrate that repayments are affordable, including under the lender's applicable stress-testing requirements.

For anyone considering a larger mortgage, the distinction between borrowing capacity and sustainable affordability is particularly important.

What Does This Mean for High-Value Property Buyers?

At £1 million and above, income multiples are only one part of the lending assessment. Private banks often take a broader view of a borrower's financial position, considering assets, liabilities, income sources and the proposed ownership structure.

For many borrowers at this level, income alone may not be the main constraint. However, for someone who is asset-rich but has a lower or less conventional income, the way a lender assesses income can still make a difference.

A move to five times income could therefore be relevant at the margin, particularly with mainstream lenders that apply income multiples more directly. It would not necessarily change the options available through private banks or specialist lenders, which may assess applications differently.

At Enness Global, we work with a network of more than 1,000 lenders. Before an application progresses, we compare how different lenders assess income, assets and existing financial commitments. If the threshold changes, the important question will be which lenders adjust their own criteria, and how quickly those changes become available to borrowers.

What Happens Next?

The Financial Policy Committee has not announced a decision or timetable for changing the high loan-to-income threshold.

For now, borrowers should continue to work on the basis of existing lender criteria rather than assume that five-times-income borrowing will become more widely available. Even if the regulatory definition changes, individual lenders will decide whether to adjust their own lending policies.

I will be watching for two developments: whether the Committee formally changes the threshold and which lenders subsequently revise their affordability criteria. Those changes, rather than the headline proposal itself, will determine whether borrowers see a meaningful difference in the mortgage market.

Important Information

This article is for general information only and does not constitute personal financial or mortgage advice. The proposed change to the high loan-to-income threshold has not been confirmed. Mortgage availability, rates and lending criteria depend on individual circumstances and lender requirements. Enness Global is a credit broker, not a lender. Not all mortgages and private bank facilities are regulated by the FCA; some specialist, buy-to-let, commercial and overseas borrowing is unregulated. Speak to a qualified adviser before making a financial decision.

Your home may be repossessed if you do not keep up repayments on your mortgage. Think carefully before securing other debts against your home.

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