Striking a new balance for mortgage lending – FCA’s Mortgage Rule Review

The FCA has launched the next phase of its Mortgage Rule Review, publishing a discussion paper aimed at encouraging open dialogue on the future of the UK’s mortgage market (DP25/2). This discussion paper follows hot on the heels of the FCA’s consultation on initial mortgage rule reforms, which closed for stakeholder feedback on 4 June 2025. 

In DP25/2, the FCA poses 37 questions as a starting point for public conversation. The discussion paper aims to help the FCA assess the changes needed to support sustainable home ownership and economic growth. As a result, the FCA’s questions are broad and wide-ranging, covering four key areas:

• revising responsible lending rules to support wider access to sustainable home ownership;
• ensuring the regulatory framework and market are prepared for the likely future increase in demand for later life lending;
• introducing more flexibility to promote consumer understanding, information needs, and innovation; and 
• rebalancing collective risk appetite in mortgage lending.

We explore each of these areas in further detail below, noting that the FCA welcomes views from firms as to which potential changes should be prioritised.

1. Responsible Lending Rules

The FCA is exploring whether its responsible lending rules could better support product innovation and access to home ownership. The focus is on those consumers that the FCA considers may currently be underserved in the market, such as potential first-time buyers, consumers on variable incomes and self-employed consumers.

Notable suggestions from the FCA include:

• Interest Rate Stress Test: The FCA is seeking views on changes to the interest rate stress test at MCOB 11.6.18R, which requires firms to consider the potential impact of likely future changes to interest rates unless the rate is fixed for a period of more than five years or until the end of contract. Concerned that the stress test may be unduly limiting the amount of borrowing that otherwise creditworthy customers can access, the FCA wishes to understand from stakeholders whether there should be changes such as including a new central stress rate (i.e. a minimum interest rate at which lenders must assess affordability) or changes to the five-year timeframe and the 1% minimum stress margin or the introduction of a regulatory margin on present product rates. 
• Affordability Assessments: The FCA has also proposed new and alternative methods for affordability assessment, including allowing past payment of rent alone to prove affordability and differentiated affordability assessments based on career trajectory which therefore support diverse employment types. 

Following on from the CP25/11 proposal to retire non-Handbook guidance on interest-only mortgages, DP25/2 also asks whether firms support changes to interest-only provisions under MCOB. The FCA’s suggestions include further support for part and part mortgages and shifts between repayment and interest-only mortgages without a repayment vehicle. 

2. Demand for Later Life Lending 

Recognising that mortgage products targeted at older borrowers – such as lifetime and retirement interest-only mortgages – are becoming increasingly mainstream, the FCA hopes to get on the front foot of specific challenges in later life lending. The FCA is therefore asking firms to consider whether it should be easier to access products like retirement interest-only mortgages and how its rules can better support product innovation and access to information and advice for older borrowers. 

3. Customer Understanding and Information Needs

The FCA is seeking industry feedback on how its rules on advice, selling standards and information disclosure can help ensure better customer journeys and enable innovation. 

The FCA is again building on its CP25/11 proposal to remove the interaction trigger at MCOB 4.8A.7R (3) by opening discussion on whether any other rules are hindering the mortgage advice and sales process. In particular, the FCA seeks views on how it can better enable innovation through AI-assisted advice and sales and in the tools available to consumers and intermediaries to assess product eligibility and the likelihood of acceptance.

On disclosure, the FCA recognises that its current mortgage disclosure rules require firms to adhere to prescriptive requirements (including in timing, content and language) which do not offer flexibility for firms to tailor their communications to customers. The key question for firms is therefore whether standardisation and prescription are helpful, or whether a more flexible approach to meeting consumers’ information needs supported by the Consumer Duty is preferred.

4. Risk Appetite in the Mortgage Market 

Finally, the FCA has posed a series of broad questions aimed at understanding firms’ views on rebalancing collective risk appetite in the mortgage market, against a backdrop of declining rates of home ownership. In particular, the FCA is looking to test firms’ views on how it should approach tolerable harm in the mortgage market and whether accepting greater risk in support of home ownership and economic growth will impact arrears and repossession levels. 

Consumer Duty Underlay 

The Consumer Duty is once again central to the FCA’s regulatory approach in DP25/2. Several of the FCA’s questions ask firms to consider whether the FCA should prescribe a particular approach or leave firms to decide on an appropriate approach which ensures good customer outcomes. 

Opportunities for innovation afforded by the Consumer Duty’s outcomes-based approach are another key theme underlying DP25/2, with the FCA keen to better understand how it can support responsible innovation in the mortgage market. 

Next Steps

Stakeholders have until 19 September 2025 to submit feedback on DP25/2. The FCA will then consider whether to take forward any changes to the mortgage regime in light of the feedback received and any relevant responses to CP25/11. The FCA also intends to hold a number of stakeholder meetings. Any proposed changes arising from DP25/2 will be subject to public consultation in the usual way.

We will continue to update you as further opportunities to contribute to the FCA’s Mortgage Rule Review arise.