"Today's announcement from the FCA is a positive step forward in the continued efforts to modernise the mortgage framework so it better reflects changing consumer circumstances"
- Michael Shand - Capco
The FCA has set out proposed changes to mortgage rules that could make it easier for first-time buyers, older borrowers and the self-employed to access the market.
The regulator's proposals would give lenders more flexibility to consider individual circumstances, including variable or foreign currency income, and to assess affordability based on a borrower's current situation rather than applying automatic exclusions for minor or historic credit issues. Updates to affordability guidance for retirement interest-only mortgages are also included, alongside revised rules on interest-only lending more broadly.
David Geale, executive director for payments and digital finance at the FCA (pictured), 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."
The announcement has drawn broadly positive responses from across the financial services industry, though some commentators have flagged the need for careful implementation.
The case for reform
Paul Broadhead, Head of Mortgages & Housing at the BSA, said, “The FCA proposals are a welcome step towards a more dynamic, accessible and inclusive mortgage market. Building societies are already innovating to provide flexible, people-first mortgage products, and we are pleased that the proposals show clear support for future innovation and flexibility.
“We will be working with members and the FCA to ensure that the proposals will deliver the intended objectives and give lenders the confidence to continue to innovate responsibly to support more people into homeownership."
"There are still significant parts of the UK's population who struggle to access competitively priced mortgages, so any encouragement from the regulator which will support mortgage innovation should be welcomed," said Julian Sampson, partner and head of lending department at TWM Solicitors.
"The elderly and the self-employed are two critical markets that are expected to continue to grow. The tough economy of the last few years has meant a lot of people picking up minor marks against their credit histories that don't reflect their current ability to service a mortgage."
Sampson also pointed to the growing credit repair sector as a sign of wider structural need. "The rise in credit repair lending is a necessary reflection of the economic climate, and having a regulator who can acknowledge the difficulties of adverse borrowers within a supportive and transparent framework can only be a positive sign that credit repair lending, managed well, must be a viable pathway for borrowers looking to move past previous credit issues."
Data from Pepper Money underlines the scale of the problem the FCA is attempting to address. Paul Adams, sales director at the specialist lender, said 30% of UK adults now have adverse credit, the highest level recorded since the firm's Specialist Lending Study began nine years ago.
"We welcome the FCA's proposal, which recognises that the way people earn and manage their finances has changed," he said. "At Pepper Money, we're already supporting many of the borrowers these reforms are designed to help, including self-employed customers, those with variable incomes and people with historic credit issues.
"Our latest Specialist Lending Study shows why this matters. Rising financial pressures mean 30% of UK adults now have adverse credit, the highest level recorded since the study began nine years ago. Meanwhile, 300,000 self-employed adults with adverse credit expect to be in a position to buy a home within the next three years, yet many remain concerned about their ability to secure a mortgage.
"More broadly, homeownership aspirations remain particularly strong among the self-employed, with our data revealing that 80% hope to own a home, compared with 73% of full-time employees and 66% of part-time workers. The way people earn an income has evolved significantly, and the mortgage market must continue to evolve alongside it.
"As a specialist lender, we're well placed to help underserved but creditworthy borrowers access finance in a responsible and sustainable way. We encourage prospective borrowers to speak to a mortgage broker to understand the options available and find the right solution for their bespoke circumstances."
Richard Pinch, head of banking and credit advisory at independent financial services consultancy Broadstone, welcomed the direction of travel while stressing the reforms did not represent a return to pre-crisis lending standards.
"The FCA's proposals represent a sensible evolution of the mortgage market, recognising that traditional affordability assessments do not always reflect the realities of modern working patterns, income streams and borrowing needs," he said.
"The regulator is seeking to give lenders greater flexibility through affordability assessments that better reflect real borrower behaviour and lifetime earnings patterns. The proposals could be particularly beneficial for groups that have historically found it more difficult to access mortgage finance, including the self-employed, those with variable income and older borrowers.
"Importantly, the FCA is not proposing a return to the looser lending standards seen before the financial crisis. Instead, it is seeking to modernise the framework to reflect today's labour market and demographics, while retaining the strong safeguards that have helped underpin the resilience of the mortgage market."
Michael Shand, managing principal at financial services and technology consultancy Capco, described the announcement as a positive step, particularly for borrowers who have historically fallen through structural gaps. "First-time buyers, older borrowers, and the self-employed have historically faced structural gaps that have prevented even financially viable people from accessing suitable lending, so moves to support more flexible lending for these groups are especially welcome," he said.
"Today's announcement from the FCA is a positive step forward in the continued efforts to modernise the mortgage framework so it better reflects changing consumer circumstances.
"The focus on allowing lenders to consider a more holistic view of borrowers' finances is also positive. Moving beyond rigid or overly binary affordability assessments will be helpful in allowing lenders to better reflect the realities of modern income patterns and cater for those with variable earnings or more complex financial profiles.
"It's also encouraging that the regulator is actively seeking input from consumers throughout the consultation process, using real borrower experience to shape the future of the rules. This should hopefully result in a final set of regulations that strike the right balance between access, protection and practicality.
"That said, affordability is still the biggest issue for consumers right now. With interest rates looking like they may soon be on the rise again and economic uncertainty only increasing, many individuals simply do not have the borrowing capacity or confidence needed. Therefore, while relaxed rules may ease supply-side barriers, the broader economic environment could prevent many consumers from accessing the mortgage arrangements they want."
Sara Costantini, regional director for the UK & Ireland at CRIF, pointed to her firm's own research to illustrate the demand for change. "The FCA's proposed changes to mortgages are a welcome step in improving accessibility," she said.
"With nearly six in ten (58%) believing financial services have a duty to provide affordable products during times of hardship, the need for reform is clear.
"Given the difficult economic climate consumers have navigated in recent years, it's not just those with complex credit profiles who feel let down by the financial products on offer – many are locked out of being able to access the support they need.
"The scale of this problem is evident. CRIF's research finds a fifth (21%) of all UK consumers have previously been turned down for borrowing or credit from a financial provider, including for mortgages, and just three in ten (29%) believe access to financial services has improved for underserved groups in the UK.
"The FCA is right to push lenders to assess affordability on a customer's full, current situation. This is why lenders must look to advances in areas like open banking data and analytics, going beyond historical credit reports, to give deeper, more accurate insights into their customers' financial situation. The result will unlock more accessible, and crucially more personalised, mortgages for more people."
A note of caution
Not all respondents were without reservation. Karen Noye, mortgage expert at Quilter, welcomed the thrust of the proposals but cautioned against the risks of overstretching borrowers.
"The proposals from the FCA acknowledge that the mortgage market has failed to keep pace with how people live and work today, and allowing greater flexibility in assessing affordability and repayments could help prospective borrowers who have more complex incomes such as the self-employed," she said.
"Current affordability assessments can be limiting for those looking to get onto the property ladder, and a shift towards a more holistic approach whereby someone's full current financial situation is considered, rather than historical credit issues immediately closing the door to homeownership, would be a positive step forward.
"However, there will naturally be a delicate balancing act when it comes to widening access. Looser rules around affordability and lending structures, particularly around interest-only offerings or borrowing later in life, may help to improve access in the shorter term, but it will be vital that borrowers do not make unsustainable commitments that could impact them further down the line.
"We have already seen a significant increase in people taking mortgages that they will be paying well into their retirement years, and this risks having a knock-on impact on their financial security and quality of life when more of their income is going on housing costs than they might have planned for."
Shand echoed that concern from a macro perspective, noting that even well-designed rule changes may be constrained by broader economic conditions. With interest rates potentially rising again and uncertainty persisting, he argued that supply-side reforms alone may not be enough to unlock access for many of the borrowers the FCA is trying to reach.
