The Financial Conduct Authority (FCA) has proposed changes to mortgage borrowing rules that could make it easier for first-time buyers, older borrowers, and self-employed workers to secure a mortgage. The City regulator aims to update regulations to reflect modern lifestyles and help creditworthy individuals who may be underserved by the current market.
Key Proposals
The FCA wants to widen access to interest-only and part interest-only lending, making it easier for borrowers to raise mortgage finance later in life. Interest-only mortgages require borrowers to pay only the interest during the loan term, with the original amount repaid at the end. This can lower monthly payments or help people buy homes earlier. However, past controversies arose due to some borrowers lacking repayment means.
Under the new proposals, if the interest-only portion is less than 25% of the property valuation, the FCA would remove the requirement for a credible repayment strategy. The regulator stated: “We believe that interest-only and part interest-only/part repayment lending could support some first-time buyers in getting on the property ladder, however the changes we are proposing are targeted, and would not make interest-only mortgages universally accessible.”
Support for Older Borrowers
The proposals would also help older homeowners unlock property wealth. Adding follow-on products like retirement interest-only mortgages or regulated lifetime mortgages as credible repayment strategies could allow underserved customers to access these loans safely. The FCA noted that with 43% of working-age people projected to under-save for retirement, better access to housing wealth could help achieve financial goals later in life.
The regulator also proposes removing guidance that requires joint retirement interest-only mortgage applications to assess affordability as standard joint mortgages. Firms would not be obliged to always consider a sole borrower’s ability to afford the mortgage if the other borrower dies, though they may consider future income like spousal pensions.
Flexibility for Variable Incomes
The FCA aims to reduce barriers for lenders offering flexible repayments to people with variable incomes, such as the self-employed, and those paid in foreign currency. Lenders should assess affordability based on full current situations rather than automatically excluding people due to minor past credit issues. The consultation document states: “Life events (for example temporary job loss) can drive credit impairment, and consumers may recover faster than some policies reflect.”
Industry Reactions
David Geale, executive director for payments and digital finance at the FCA, said: “We’re living longer and how many people work has changed. Our mortgage rules need to keep pace so those who can afford to repay can borrow. Stronger protections mean we can now safely widen access to mortgage borrowing for those that may be underserved.”
Sarah Coles, head of personal finance at AJ Bell, commented: “Developing products to better suit people’s lives makes perfect sense. But mortgages are just one part of the picture. A healthy housing market also needs enough affordable properties, plus tax rules that don’t distort buyer behaviour.”
Karina Hutchins, director of mortgages at UK Finance, added: “UK Finance welcomes the proposed changes to the mortgage rules. These proposals update existing guidance and give lenders greater flexibility to support customers’ evolving needs.”
The FCA is seeking feedback on the proposals by July 28, using an online tool to hear directly from consumers.
