FCA seeks feedback on proposed mortgage reforms

The FCA is inviting stakeholder feedback on proposed reforms to simplify its mortgage framework and support sustainable home ownership (CP25/11). Part of a broader Mortgage Rule Review, this consultation builds on the FCA’s five-year strategy commitment to helping consumers navigate their financial lives and supporting the competitiveness of financial services.

A theme underlying the FCA’s proposed reforms is the shift towards outcomes-based regulation under the Consumer Duty. The proposals in part reflect the FCA’s push to update or remove detailed and prescriptive requirements which are covered by the Consumer Duty. In combination with the FCA’s broader efforts to streamline its regulatory burden, we expect these reforms will pave the way for firms to innovate in their efforts to support good customer outcomes. 

What is the FCA proposing?

CP25/11 sets out three proposals from the FCA to reform the existing mortgage regime. 

Amendments to Mortgage Advice and Selling Standards

First, the FCA is proposing to amend its mortgage advice and selling standards to remove the interaction trigger at MCOB 4.8A7R (3). The interaction trigger prohibits execution-only sales where there is an “interactive dialogue” between the firm and its customer. With limited exceptions, this requires firms to provide regulated mortgage advice whenever they interact with a customer in a mortgage sale or contract variation.

A 2019 Mortgages Market Study conducted by the FCA concluded that existing advice rules and guidance were limiting consumer access to execution-only options more than intended. Although the FCA later amended its mortgage advice and selling standards to allow more customer interaction, the FCA considers that these changes achieved their intended result. 

The FCA is therefore proposing to remove the interaction trigger and instead introduce a rule requiring firms to consider whether processes are appropriate to identify execution-only customers for whom advice, or other customer support, may be necessary to avoid foreseeable harm as part of meeting its obligations under the Consumer Duty.

As part of the proposal to remove the interaction trigger, the FCA also proposes to remove the requirement under MCOB 4.8A.14R (5) for customers to positively elect to proceed with an execution-only sale where there is interactive dialogue with the firm.

Amendments to Affordability Rules for Mortgage Term Reductions and Remortgaging 

The FCA is also proposing to amend its Modified Affordability Assessment (MAA) to encourage a more flexible approach to affordability assessments for remortgaging activity. 

The MAA was finalised in 2019 (PS19/27) to assist borrowers in switching to a more affordable mortgage deal. It offers lenders the flexibility to carry out a simplified affordability assessment if certain circumstances are satisfied e.g. where the consumer has a current mortgage, is up to date with repayments and does not wish to borrow more.

Under the proposed amended MAA, lenders would be permitted to enter into a new mortgage contract that is more affordable than either:

1. a customer’s current mortgage; or
2. a new mortgage product that is available to that customer from their current lender.

As with the existing MAA, this would remain optional for lenders depending on their appetite to accept the associated increased risk.

Retirement of Non-Handbook Guidance

Finally, the FCA proposes retiring two pieces of non-Handbook guidance: FG13/7 and FG24/2.

Introduced in August 2013, FG13/7 was designed to improve industry standards and conduct relating to interest-only mortgages given the risk of non-repayment at maturity. An industry working group established by the FCA to understand how the guidance has been used found that firms have developed practices both in accordance with, and more advanced than, the guidance including through implementation of the Consumer Duty. In these circumstances, the FCA considers that FG13/7 has fulfilled its original purpose and can be retired. To avoid an unintended gap in requirements, the FCA proposes to introduce a rule and guidance which clarify that firms must deal fairly with customers whose mortgage terms have expired and not take repossession action unless all other reasonable attempts to resolve the position have failed.

FG23/2 was issued in March 2023 in response to a spike in interest rates at the end of 2022 and concerns regarding cost-of-living increases. The guidance simply restated the requirements under the FCA’s Handbook to ensure firms were clear about the effect of the FCA’s rules and their options for supporting customers. As it did not create new obligations on firms or new protections for consumers, the FCA’s position is that this guidance can now be retired. 

Next Steps

CP25/11 is the FCA’s first consultation on proposals under the Mortgage Rule Review. It will be followed in June 2025 by a Discussion Paper which will explore topics including risk appetite and responsible risk taking, alternative affordability testing and product innovation, lending into later life and consumer information needs.

Stakeholders have until 4 June 2025 to submit feedback on CP25/11. The FCA will then consider the feedback received and intends to publish a Policy Statement in Q3 2025.

Please contact us if you would like help navigating what the proposed reforms mean for you.