FCA proposes mortgage access reforms for first-time buyers, older borrowers and self-employed

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FCA mortgage access reforms

Highlights

FCA proposes new rules enabling lenders to offer more flexible mortgages to first-time buyers, older borrowers and the self-employed based on broader financial assessments.
The proposals allow increased use of interest-only mortgages and require affordability assessments using current borrower circumstances, including those with minor or historic credit issues.
FCA acknowledges modest risk increase but highlights that 99% of mortgages issued since 2014 are performing well, with arrears at historically low levels despite recent rate rises.

Proposed rules and lending flexibility

As outlined by the Financial Conduct Authority, the proposed changes are designed to help more people obtain mortgages that better reflect modern financial circumstances, including first-time buyers, older borrowers and the self-employed.

The regulator says it wants lenders to take a more rounded view of borrowers' finances so they can offer loans suited to individual situations rather than a standard template. That could allow people with variable monthly income to access mortgages with more flexible repayments, while older homeowners may find it easier to use housing wealth to support retirement.

The proposals also encourage firms to assess affordability using a borrower's full and current circumstances, rather than ruling them out because of minor or historic credit issues. Lenders would also have more flexibility to offer interest-only mortgages where appropriate, while still being required to lend responsibly.

Risk balance and wider housing impact

The FCA says broader access to mortgage lending brings trade-offs, particularly because borrowers with less certain incomes may be more exposed to financial shocks such as unemployment or ill health. Even so, it argues the longer-term costs of leaving more people unable to buy a home are often underestimated, especially when renting is usually more expensive, less secure and can create added pressure in retirement.

The regulator says the market remains resilient, with core affordability requirements staying in place. It adds that 99% of mortgages taken out since 2014 are on track and arrears remain at historically low levels despite recent interest rate rises.

The FCA says feedback received so far, along with its own research, indicates any modest increase in risk is manageable if it delivers benefits to more consumers. It also says a mortgage market that serves a wider range of borrowers will depend not only on regulation, but also on coordinated action by national and local government, lenders, brokers and developers.

Our earlier article on the UK residential mortgage market update explained that the housing market is moving into a more balanced phase as transaction activity normalises and demand stabilises, even as house price momentum softens and regional differences persist. It also noted that UK RMBS credit performance has been broadly steady thanks to strong prime collateral and resilient deal structures, while divergence between prime and nonprime borrowers remains a key watchpoint. The piece added that cooling rental growth and incoming regulatory shifts could materially reshape the buy-to-let sector and landlord behaviour, influencing the wider mortgage and housing outlook.

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