The home buyers who could benefit from possible mortgage rule changes
The UK’s financial watchdog has initiated a “public conversation” into the future of the mortgage market, potentially easing access for first-time buyers, the self-employed, and those borrowing into retirement.
The Financial Conduct Authority (FCA) has released a discussion paper outlining the potential benefits and risks of rule changes, aiming to support wider access to sustainable home ownership and foster economic growth.
The regulator believes greater flexibility could enable lenders to tailor products more effectively to diverse customer needs.
The FCA is particularly keen to explore how firms can better support groups currently underserved by the market, including individuals on variable incomes and aspiring first-time buyers.
David Geale, executive director for payments and digital finance at the FCA, affirmed the regulator’s ambition, stating: “We want to evolve our mortgage rules to help more people access sustainable home ownership.”
Its data shows that in 2024, more than two-thirds (68 per cent) of first-time buyers borrowed for terms of 30 years or longer.
The paper said: “Many people’s patterns of employment in the UK are now very different to those of earlier generations. There is more use of short-term contracting, zero-hours contracts and more people are self-employed.”
The regulator wants to hear feedback on what further changes are needed to support mortgage access for those who are self-employed or with volatile income, both for home purchase and in later in life.
The FCA is also seeking opinions on whether the stress test for mortgages should be changed. The stress test requires lenders to consider the potential impact of likely future changes to interest rates, to help make sure a borrower can afford their mortgage.
Firms were made responsible for setting their stress rate, but the paper suggested a central stress rate could be set, with a forecasting model updated at regular intervals.
However, there could be some drawbacks to this suggestion, including firms losing flexibility to adapt their test to different products, the paper said.
The document also put a spotlight on homeowners increasingly needing to access their housing wealth to help fund them through retirement.
It said that with 38 per cent of working-age people projected to be under-saving for retirement, “access to mortgages could be key to helping people achieve their financial goals in later life”.
Many lenders will now accept earned income up to the age of 75 in their affordability assessments.
But the paper said that some products tailored to older borrowers can generally be more expensive than standard mortgages – and older people may not know about the full range of options available to them.
The FCA said it wants to help ensure its rules are not creating a barrier to innovative products.
As an example, equity release products allowing borrowers to draw down on a monthly basis, rather than in a lump sum, may be a cost-effective option for some people who do not have a reliable income in retirement, the paper suggested.
Other discussion points in the wide-ranging paper include whether the regulator should intervene to support the take-up of long-term fixed-rate mortgages; whether a rent-based affordability assessment would be a responsible basis to assess a consumer’s ability to repay a prospective mortgage; and whether the regulator should take further steps to support part interest-only and part capital repayment (“part and part”) mortgages.
The regulator wants to hear feedback on whether changes to interest-only mortgage provisions could help first-time buyers.
It also wants to know whether more could be done to support survivors of economic abuse who are in a joint mortgage with their abuser.
The FCA is also looking at whether there are any regulatory interventions to the mortgage market that could help with addressing climate change challenges.
There are around 8.96 million regulated mortgages across the UK and 3.6 million renting households who aim to buy a home in the future, according to the FCA.
Lending rules were toughened following the 2008 financial crisis. The FCA said this has led to a more resilient market, with fewer borrowers in arrears and more than 99 per cent of mortgages originated since 2014 being on track.
The discussion paper added: “However, this more cautious approach may also have unduly restricted consumer access to the market. As house prices have grown much faster than wages, home ownership has become an increasingly challenging aspiration for many – particularly those without financial support from family.
“Increasing numbers of consumers are finding it hard to meet affordability criteria, access a mortgage and consequently own a home.”
The regulator said that while it may amend its rules in future, oversight and monitoring of the market and the Consumer Duty, which requires firms to put consumers at the heart of what they do, will continue to be central to its approach.
It said it will continue to hold firms to high standards and closely monitor trends.
Those with an interest in the paper will include mortgage lenders, intermediaries, trade bodies, consumer groups, homeowners and people aiming to become homeowners, the regulator said.
Feedback will close on September 19. The regulator said it will focus on how consumers and the market are protected before recommending any rule changes.
