FCA Discussion Paper: Is deregulation the answer to UK house ownership concerns

The Financial Conduct Authority (FCA) has recently published Discussion Paper DP25/2, Mortgage Rule Review: The Future of the Mortgage Market, which follows the previous consultation on the simplification of the regulators’ rules and increased flexibility, within the mortgage market, as discussed in our previous article. The paper forms part of the FCA’s overall 5-year strategy aimed at deepening trust, rebalancing risk, supporting growth and helping consumers navigate their financial lives.

Purpose of the discussion paper

The FCA’s intervention is largely driven by a growing concern that current mortgage rules, originally designed in response to the 2008 financial crisis, may now be overly restrictive and out of step with the realities of today’s housing market. The UK mortgage sector has proven resilient, with more than 99% of post-2014 loans performing as expected. However, this has come at a cost, including increasing difficulty for potential borrowers to access mortgage finance, particularly first-time buyers, self-employed individuals, and those with irregular income.

Additionally, demographic trends, such as an aging population and increasing numbers of people under-saving for retirement, have highlighted the need for more accessible later-life lending solutions.

Key proposals and themes

What are the key areas of focus for the FCA and what might the changes look like? We summarise these below.

1. Rethinking Affordability Rules
   
   The FCA considers the current affordability rules, including the interest rate stress test under Mortgages and Home Finance: Conduct of Business (MCOB) 11.6.18R, may be overly restrictive. Options for reform include:

• Introducing a centralised stress test benchmark
• Using rental history as proof of affordability and
• Tailoring assessments for specific borrower types (e.g. professionals with rising incomes).
  
  The suggestion to use rental history as proof of affordability is an interesting one. More often than not, applicants have been renting for a considerable period of time and paying greater rental fees than their mortgage payments might be. As such, we consider this change will see an increase in the number of mortgages being successfully obtained.

2. Later Life Lending
   
   The changes will also help with current concerns about retirement income, with the FCA noting that over 50% of people aged 60 and above might require housing wealth to support their retirement income by 2040. By helping young people get on the property ladder now, the FCA seemingly hopes to avoid a retirement income crisis in the decades to come.
   
   
3. Improving Advice and Disclosure Standards
   
   The FCA is reassessing whether advice and sales rules from the MMR remain fit for purpose, especially in digital or non-advised contexts.
   
   
4. Tackling Economic Abuse and Consumer Vulnerability
   
   Proposals include relaxing joint borrower rules to better support survivors of economic abuse, such as allowing name removal without full reassessment.
   
   
5. Bridging Finance and Non-Mainstream Products
   
   The FCA is also considering whether to extend the 12-month cap on bridging loans and to ease rules on interest roll-up products for property development or refurbishment.

Regulatory direction and next steps

The FCA is seeking views by 19 September 2025 and plans to engage with the industry through meetings and written responses. Should any proposals be taken forward, they would be subject to a formal consultation process and cost-benefit analysis.

Although no immediate regulatory changes are being implemented, the direction of travel is clear: the FCA is open to recalibrating its mortgage regime in favour of flexibility, innovation, and increased access. Mortgage firms and PI insurers should begin assessing how a shift in lending rules could impact liability, suitability assessments, and future claims trends.

Impact on advisers

The announcement has been welcomed by many in the industry, but advisers will now face new responsibilities and opportunities. Advisers must demonstrate greater professional judgment and reliance on documentation to evidence that the product offered was suitable.

For customers that cannot afford a repayment mortgage, the FCA has also suggested that interest only mortgages may be an appropriate option. Such a suggestion should be approached with caution by advisers. Having been popular during the last two financial crashes (early 1990’s and 2007 – 2009), there have always been a wealth of claims pursued after, particularly when the mortgage term ends and the consumer has to pay back the capital. Of course, the product itself is not inherently bad – and there are certainly times when they are appropriate. However, in our view, interest only mortgages are arguably one of the most complained about financial products in recent years. Advisers should think carefully before recommending them and ensure a clear advice trail (including highlighting that the capital will be owed at the end of the term) is maintained. Equally, advisers may want to check their professional indemnity policy – with claims relating to interest only mortgages sometimes being excluded. 

Comment

Relaxing the rules will increase the range of acceptable borrowers, but also widen the pool of potentially mis-sold cases. The continued and potentially vast changes to the advice regime may be welcomed by the industry, but will also increase the burden on risk & compliance teams. Advisers will no doubt find any deregulation of the industry difficult to reconcile with the continuing Consumer Duty.

These changes continue to show the direction of travel the FCA is taking more generally – balancing consumer needs with a desire to grow the economy. The regulator has made clear this is not about relaxing rules for the sake of it. The aim is to support sustainable lending while keeping consumer protection front and centre.

The publication of DP25/2 is not simply a regulatory review, it is an opportunity for firms to prepare for a more nuanced, outcome-focused regime. It is also a timely reminder that professional liability risks do not disappear when the rules are relaxed; in many cases, they evolve in more complex ways.

Related item: FCA consults on proposals to streamline the mortgage rules