First-time buyers, older homeowners and the self-employed could soon find it easier to secure a mortgage under radical new proposals from the City regulator, which admits the market has failed to keep pace with modern lifestyles.
The Financial Conduct Authority (FCA) has published plans to widen access to interest-only and part interest-only lending, arguing that some creditworthy borrowers are currently underserved. “We’re living longer and how many people work has changed,” said David Geale, the FCA’s executive director for payments and digital finance. “Our mortgage rules need to keep pace so those who can afford to repay can borrow.”
“FCA unveils mortgage reforms to widen access for first-time buyers, self-employed and older borrowers”
The move marks a significant shift from the post-2008 crackdown on interest-only lending, which became controversial after borrowers without a repayment plan were left unable to pay off the original loan. In 2014, the Mortgage Market Review imposed stricter affordability checks, requiring lenders to verify a credible repayment strategy. Now the regulator believes stronger protections mean it can safely relax the rules.
Under the consultation, the FCA proposes removing the requirement for a credible repayment strategy when the interest-only part of the mortgage is less than 25% of the property’s valuation obtained by the lender. The regulator said in its document: “We believe that interest-only and part interest-only/part repayment lending could support some FTBs in getting on the property ladder, however the changes we are proposing are targeted, and would not make interest-only mortgages universally accessible.”
Borrowers with fluctuating incomes, including the self-employed, could also benefit from a more individualised assessment of their creditworthiness. Older homeowners would be able to unlock wealth built up in their property more easily.
The FCA acknowledged the risks, saying “the risk of adverse consequences for some consumers when using such products had been carefully considered” and that it had also weighed “the risks associated with renting for longer if consumers are unable to buy their own home.”
The consultation is open for feedback until July 28, with the new rules expected to come into force later this year. The proposals could reshape the mortgage market for thousands of borrowers who have been locked out of homeownership by rigid lending criteria.