The Prudential Regulation Authority and the Financial Conduct Authority have confirmed they will open a discussion with firms over an issue which institutions say caps the funds they can lend into the economy. 

Current LTI rules cap new residential mortgage loans at, or greater than, 4.5 times salary to no more than 15% of total home loans a year.  

Institutions that lend less than £100m a year are exempt from this rule. 

Regulators propose to extend this exemption to firms that lend less than £150m in home loans a year. 

The PRA says: “The change would address inadvertent regulatory tightening by increasing the value of residential mortgage lending that small lenders can extend before becoming subject to the LTI flow limit, thereby contributing to the regulators` secondary objectives on competition, and therefore competitiveness and growth.” 

Regulators say their consultation will close on 8 May. 

A range of industry bodies have called for this 2014 rule, which ultimately rests with the Financial Policy Committee, to be eased.

But they may be disappointed at the limited scope of the review, which does not allow large lenders to relax their thresholds.

Last month, UK Finance called for loan-to-income lending limits to be eased as part of a package plans to boost the economy.   

The Building Societies Association and Intermediary Mortgage Lenders Association have also called for this rule to be eased to increase lending, particularly among first-time buyers.

Nationwide also called on the government to review the existing 4.5 times LTI limit last month, citing its Helping Hand mortgage, which accounted for 23% of Nationwide’s FTB mortgages last year, which had to be curbed in January to stay within regulatory lending rules. 

Nationwide director of home Henry Jordan said: “We are at the limits of where we can take this product. We have not named a particular threshold but, if the limit was lifted to, say, 20%, we could fund another 10,000 FTBs over the next year.”