First-time buyers and the self-employed could benefit from more flexible mortgage rules from later next year, the Financial Conduct Authority has confirmed.
The City watchdog has been working on mortgage reforms for much of 2025 amid concerns about high interest rates and affordability requirements that are stopping people from buying a property.
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David Geale, executive director for payments and digital finance, said: “We have worked at pace this year to improve outcomes for customers wanting a mortgage.
Simplifying mortgage lending rules
Currently, borrowers have to navigate tough affordability assessments and interest rate stress tests when applying for a mortgage.
Borrowers with unpredictable income or who haven’t worked for long can find it difficult to get a home loan approved.
The FCA is trying to address that by introducing more flexibility into its lending rules.
One of the big issues is loan-to-income (LTI) ratios. Mortgage lenders have traditionally faced restrictions on how much they could lend above 4.5 times a borrower’s income. That can make getting a home loan harder when house price growth outpaces wage inflation.
In July 2025, the Financial Policy Committee (FPC) recommended that the FCA and the Prudential Regulation Authority allow individual lenders to increase their share of lending at LTI ratios of 4.5 or higher.
Many banks have already started boosting their LTIs and the FCA said it is working on a new policy that will be consulted on next year.
Other changes include ensuring mortgage lenders consider rental repayments as evidence of affordability.
The FCA said it will also look at supporting more payment flexibility beyond lenders just requiring “monthly payments” in their loan documentation, which could help self-employed people who have irregular income.
Interest-only mortgage lending changes
Interest-only lending has been curbed since mortgage rules were introduced on 2014 in the aftermath of the financial crisis.
An interest-only loan can be cheaper as there are no repayments but the rules currently require a credible repayment strategy. That has made lenders wary about approving loans on an interest-only basis, particularly to first-time buyers.
The FCA is now looking at the policy and said it will review rules on what a credible repayment strategy includes, such as the option to consider later life mortgages.
The regulator said: “This could potentially widen mortgage availability to certain underserved customers, including middle‑aged borrowers for whom a full repayment mortgage may no longer be viable.
“Instead, an interest‑only or part interest‑only loan could support house purchase, with a view to using a lifetime product later in life.”
Commenting on the proposals, Mary-Lou Press, president of the National Association of Estate Agents), said greater flexibility for first-time buyers, the self-employed, and those with non-traditional or later-life income has the potential to unlock home ownership for groups who have historically been underserved.
She added: “Moves to simplify rules, modernise affordability assessments and responsibly embrace innovation such as rental payment data and AI-driven advice could make a meaningful difference, provided robust consumer protections remain in place. The fact that the vast majority of mortgages remain out of arrears shows the current system is fundamentally sound, but also that there is room to carefully widen access without increasing risk.
“As affordability pressures ease and lenders adapt following changes to stress testing, reforms should be introduced in a measured way, alongside clear advice and transparency. Ensuring consumers fully understand their options, particularly around interest-only, part-repayment and later life lending, will be key to supporting sustainable home ownership both now and in the future.”
Equity release review
Equity release can help older borrowers access cash tied up in their property.
But the minimum age is 55, which the FCA suggests now potentially clashes with more people taking out mortgages later in life.
Equity release products have also faced criticism for high interest rates, low consumer awareness and a lack of competition among specialist advisers.
The FCA said it will conduct a market study to assess if equity release products can and will develop to meet the increased and differing needs of consumers in the future.
Geale added: “Reforming the mortgage market can help address the fact that as a society we’re saving too little for later life, yet people have huge wealth tied up in property.”
David Burrowes, chair of the Equity Release Council, added: “The FCA’s acknowledgement that housing wealth will play an increasingly important role in later life financial wellbeing is both timely and necessary. For many older homeowners, later life lending is no longer a niche option, but a practical and responsible way to support retirement income, manage debt, or remain in their own homes for longer.”
“The FCA’s roadmap highlights demographic change, longer mortgage terms and pension under-saving as structural challenges facing the UK, and signals further work to ensure the later life lending market is ready to meet growing demand.”
