Small lenders who underwrite residential mortgages up to £150m a year will not be bound by the loan-to-income flow limits of larger institutions.

The move by regulators comes into effect on 11 July and lifts the previous threshold from £100m, which has been in place since 2014.

The ruling applies to smaller banks, building societies, friendly societies, credit unions, and overseas banks with UK branches, according to a joint policy statement by the Prudential Regulation Authority and the Financial Conduct Authority.

The move which was first sanctioned by the Financial Policy Committee last November, “increases 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”.

The LTI flow limit that large lenders are subject to restricts them to LTI ratios of no more than 4.5 times salary to 15% of new mortgages a year.

Nationwide, Skipton Building Society and UK Finance are among a number of larger lenders and bodies who have called for the LTI limit to be raised to around 20%.

However, Financial Conduct Authority and the Bank of England argue that this form of elevated lending risks pushing up house prices and higher defaults.