FCA announces mortgage rule review

The Financial Conduct Authority (FCA) has released a discussion paper on mortgage market rules to help boost home ownership. The FCA says that first-time buyers, the self-employed and people borrowing into retirement could benefit from further possible changes to mortgage rules.

The regulator says that the mortgage market has changed considerably over the years. First-time buyers are older and borrowing for longer, including into later life.

The data shows that in 2024, 68% of first-time buyers borrowed for terms of 30 years or longer. Homeowners will also increasingly need to access their housing wealth to provide for their needs during retirement.

Home ownership has become an increasingly challenging aspiration for many, with more people renting for longer periods.  Those who do rent face higher housing costs and less security. The FCA’s Financial Lives 2024 survey shows those who are renting are more likely to display characteristics of vulnerability and to be in poor health compared with other UK adults.

Over recent years, the FCA has seen improvements in mortgage lenders’ conduct standards and default rates have remained historically low. The work to reform mortgage rules was included in the FCA’s new strategy, which commits the regulator to helping consumers navigate their financial lives and help growth. The measures were also included in a letter to the Prime Minister, which detailed changes to support economic growth.

As part of this work, the FCA has talked to firms about the flexibility already available when checking if someone can afford a mortgage. This has helped more borrowers access mortgages.

Several factors influence the future of the mortgage market. Housing supply, social policy and wider economic conditions all impact affordable home ownership.  The FCA highlights that any changes to its rules are only one part of the story. They will work with others to support access to home ownership to create an effective mortgage market where more borrowers who can afford to repay can access the mortgages they need.

David Geale, Executive Director for Payments and Digital Finance, said “We want to evolve our mortgage rules to help more people access sustainable home ownership.  Having achieved higher standards in the market, now is the time to consider allowing more flexibility in a trusted market.

“Changing our mortgage rules could make it easier for people to get onto the property ladder and manage mortgages into retirement.

“We can’t solve all the issues related to home ownership. But we’re playing our part in helping people better use the mortgage market to navigate their financial lives and to encourage a dynamic, innovative and competitive market.”

Paul Broadhead, Head of Mortgage and Housing Policy at the Building Societies Association (BSA) said “Since the financial crisis, it is clear that the regulatory pendulum has swung too far towards caution, prioritising detailed rules at the expense of access to the benefits of homeownership for many creditworthy families. We therefore welcome the Financial Conduct Authority’s (FCA’s) Discussion Paper exploring the future of mortgage lending for all types of borrowers.  Alongside the Government’s promised long-term housing strategy, this review provides a crucial opportunity to shape the UK mortgage market for the next decade and beyond.

“Over the summer, we will engage with our members and carefully consider our response. I expect some very lively discussions as we explore both the risks and opportunities across all areas of mortgage regulation. In doing so, it’s important that we don’t jeopardise the consumer confidence and trust we have built in the mortgage market since 2008, but we must be radical and ambitious in our thinking to ensure we achieve a framework that enables us to support more people on their homeownership journey both now and in the future.

“We must be mindful of the way people live today and ensure that all proposals are future-proofed. Wide ranging reviews of the mortgage market are rare so this is potentially a once in a generation opportunity. The outcome of both this review and a supply-side plan from Government must together create an environment where homes are more affordable, more available and more appropriate to the needs of those who will live in them. It is incumbent on us today to contribute to the design of an innovative, flexible and sustainable mortgage market that meets the needs of current and future generations.”