FCA mortgage lending rule changes: what the 2026 consultation proposes

The Financial Conduct Authority published a consultation paper in June 2026 setting out proposed changes to mortgage lending rules that could make it easier for some borrowers to access home finance. The proposals are part of a wider review of the mortgage market and are designed to help first-time buyers, older borrowers, the self-employed and people with past credit difficulties. The consultation closed on 28 July 2026 and the FCA said in June 2026 that it expected to publish a policy statement in the second half of 2026.

At the same time, the FCA and the Prudential Regulation Authority consulted on separate changes to the loan to income flow limit following a recommendation from the Bank of England's Financial Policy Committee. That consultation opened in April 2026 and closed on 1 July 2026. The regulators said in April 2026 that they expected the new rules to come into force in the second half of 2026.

What the FCA proposed on interest-only mortgages

The FCA proposed in June 2026 to relax some of the requirements around interest-only and part interest-only mortgages. Under the proposals, borrowers taking out a mortgage where the interest-only portion is less than 25 per cent of the property valuation would not need to have a credible repayment strategy in place. For interest-only amounts between 25 and 50 per cent of the valuation, the FCA proposed to remove the requirement for lenders to consider whether the borrower would have enough equity to buy a cheaper property at the end of the mortgage term.

The FCA also proposed in June 2026 to add new examples of credible repayment strategies, including follow-on mortgage products such as retirement interest-only mortgages and conversion to a repayment mortgage within a reasonable period. The regulator said in its consultation paper that the changes were targeted and would not make interest-only mortgages universally accessible. It said responsible lending requirements would remain in place and firms would still have a duty to check that a mortgage is affordable.

Retirement interest-only mortgage proposals

The FCA proposed in June 2026 to remove guidance that requires lenders to consider whether a surviving spouse or civil partner could afford a joint retirement interest-only mortgage if the other borrower dies. The regulator said in its consultation paper that firms had told it the guidance was too restrictive and was constraining the availability of these products. Under the proposal, lenders would be able to assess affordability for joint retirement interest-only mortgages in the same way as for standard joint mortgages, using their own risk appetite and in line with the FCA's mortgage conduct rules and the Consumer Duty.

The FCA said in June 2026 that it had chosen to propose this change ahead of the completion of its Later Life Mortgages Market Study because it had received sufficient feedback that removing the guidance would help lenders offer these products to more customers.

Variable and irregular income

The FCA proposed in June 2026 to clarify that lenders can agree payment schedules at frequencies other than monthly, including quarterly or other regular intervals. The regulator said in its consultation paper that some parts of its mortgage rules reference monthly payments, which it believed might deter firms from product innovation. The FCA proposed to amend references from monthly payments to regular contractual payments in relevant parts of its handbook and to expand guidance to include examples of evidence for assessing affordability for customers with variable or irregular income.

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The FCA said in its June 2026 press release that its proposed mortgage rule changes would give lenders more flexibility to consider individual circumstances and develop products that better meet people's needs, while maintaining strong consumer protections.

Credit impairment and foreign currency proposals

The consultation paper published in June 2026 also included proposals on lending to people with past credit difficulties and lending in foreign currencies. The FCA said in its consultation that it wanted to encourage lenders to take a more individualised approach when assessing the creditworthiness of customers with impairment in their credit history, rather than automatically declining them. The regulator also proposed changes to lower barriers for firms that want to lend to consumers paid in foreign currency or to lend in a foreign currency.

Loan to income flow limit changes

The Bank of England's Financial Policy Committee recommended in July 2025 that the PRA and FCA should amend implementation of the loan to income flow limit to allow individual lenders to increase their share of lending at loan to income ratios of 4.5 or higher, while aiming to ensure the aggregate flow remained consistent with the 15 per cent limit. The current rule, which has been in place since 2014, limits the number of new residential mortgages at loan to income ratios at or greater than 4.5 to no more than 15 per cent of a lender's total new mortgage lending.

The PRA and FCA consulted in April 2026 on proposals to remove the 15 per cent limit for individual firms from the PRA rulebook and FCA guidance. Under the proposals, lenders would have flexibility to determine their own individual high loan to income lending strategies, provided the aggregate across all lenders remained consistent with the 15 per cent limit. The regulators said in April 2026 that they expected the changes to come into force in the second half of 2026. Interim measures allowing individual lenders to apply to lend above 15 per cent were put in place in July 2025 and were extended to 31 December 2026 or the date the new rules come into force, whichever is earlier.

The Financial Policy Committee said in its April 2026 record that the aggregate share of lending at high loan to income ratios had increased to 11.5 per cent in the fourth quarter of 2025, supported by a number of lenders taking up the PRA's option to disapply their individual loan to income flow limit.

What the changes might mean for borrowers

If the FCA's proposals are finalised as consulted, some borrowers may find it easier to access certain types of mortgage. The changes to interest-only rules could help first-time buyers who cannot afford the monthly payments on a full repayment mortgage but can demonstrate they will have equity in the property at the end of the term. Older borrowers may benefit from wider availability of retirement interest-only mortgages if lenders use the additional flexibility proposed by the FCA. Self-employed borrowers and those with variable income may see more products designed to accommodate irregular payment patterns.

The changes to the loan to income flow limit implementation could allow some lenders to offer mortgages at higher income multiples to more borrowers, although each lender will make its own commercial decisions about how to use the flexibility. UK Finance said in December 2025 that affordability pressures were likely to limit borrowing options for some prospective customers in 2026, and that responsible lending rules would continue to ensure those able to access the market could do so on an affordable, sustainable basis.

None of the proposed changes remove the requirement for lenders to assess affordability or to comply with the Consumer Duty. The FCA said in June 2026 that its proposals keep responsible lending requirements in place and do not remove firms' duty to check that a mortgage is affordable. Borrowers considering any mortgage should speak to a qualified, regulated mortgage adviser to understand what options are available based on their individual circumstances.

Status of the proposals

The FCA's consultation on changes to support first-time buyers and underserved consumers closed on 28 July 2026. The regulator said in June 2026 that it expected to publish feedback on responses and issue a policy statement in the second half of 2026. Until a policy statement is published with final rules, the proposals remain under consideration and are not in force. The joint PRA and FCA consultation on the loan to income flow limit closed on 1 July 2026 and a policy statement is also expected in the second half of 2026.

The FCA said in June 2026 that it would continue with policy development across the remaining three themes of its mortgage rule review: enhancing later life lending, enabling innovation and protecting consumers in vulnerable circumstances. Policy development on all themes is expected to commence by the end of 2026 and continue through 2027 as required.

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