First-time buyers, people borrowing into retirement and those who are self-employed could benefit from possible changes to mortgage rules, as the City regulator kicks off a “public conversation” into the future of the market.

The Financial Conduct Authority (FCA) has launched a discussion paper on the potential benefits and risks that changing rules could see.

The paper highlights parts of the market where changes could help support wider access to sustainable home ownership as well as economic growth, and where allowing more flexibility could make it easier for lenders to tailor their products to customers’ needs.

David Geale, executive director for payments and digital finance at the FCA, told the PA news agency: “We’re starting a public conversation on the future of the mortgage market, to see what we can do to help consumers navigate their financial lives and to support growth.

“So it’s very much at that discussion end of: Here are some thoughts, where should we be on the spectrum of balancing risk versus opportunity?”

He added: “The areas we’ve opened up for discussion I think will benefit a wide group of people.

“But we are particularly looking at some of the constraints we see around people who are self-employed, people with volatile or unpredictable incomes, people maybe in vulnerable circumstances, who may be a good mortgage risk from a lending perspective, but the rules may be too rigid to allow lenders to look at them a bit more holistically.”

Mr Geale said: “It’s looking at people for whom society has evolved in terms of the ways that they’re paid and the ways that they live.”

He said that the FCA is looking at whether there is more that can be done to help first-time buyers, people who are long-term renters with aspirations to get into the housing market, as well as people in later life who may have significant equity in their home but who “may be income-constrained”.

Mr Geale later added: “What we’re saying is we think there are perhaps better ways of assessing who is a good mortgage borrower. So, for example, if you’ve been paying rent on a regular basis, had no problem paying your rent, and a mortgage would actually be cheaper, well, could we be more explicit about the ability to take that into account?”

He said the FCA will take what comes out of the discussion paper and “reflect on that as feedback and then decide which areas we actually think we may need to change the rules, if at all”.

Mr Geale described the discussion paper as “an exciting way into” the debate about finding the right balance.

He added: “We are aiming to do this quickly, we are not hanging around. We have already acted in some places where we think there was room to do that.”

The regulator’s data shows that in 2024, more than two-thirds (68%) 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% 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% 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.

Matt Smith, Rightmove’s mortgage expert, said: “It’s really promising that the regulator is opening up these discussions and continuing to look at targeted regulatory changes that could help people in different circumstances to borrow what they need to buy a home.

“We particularly welcome the potential to help more first-time buyers that can afford it to borrow more responsibly, and have access to sustainable home ownership.”

He added: “There are also some significant regional differences in property prices to be mindful of in discussions about enabling people to borrow more, with the gap between average earnings and property prices more stretched in the south of England than the north of England, Scotland and Wales.

“The desire to support more people in achieving their home ownership aspirations needs to be balanced against the potential risks of allowing people to borrow more, so that mortgage lending continues to be responsible.

“This balance is complex and is why we welcome the FCA’s approach to open up a wide-ranging discussion on what is right.”

Charles Roe, director of mortgages at UK Finance, said: “We welcome the FCA’s discussion paper on the future of the UK’s mortgage market, and its recognition that changes to current regulations are needed to support sustainable home ownership to stimulate economic growth.

“Whilst mortgage firms will always lend responsibly, we look forward to working with our members to identify ways the FCA could amend its rules to help more individuals get on to, and move up or down, the housing ladder.”