Mortgage market reforms: how the FCA's new affordability rules could help you onto the property ladder

In order to assist underprivileged borrowers, the Financial Conduct Authority (FCA) will consult on a number of changes to mortgage lending regulations in 2026

The Financial Conduct Authority has confirmed that looser mortgage regulations may be advantageous for self-employed people and first-time buyers starting later next year.

For the majority of 2025, the City watchdog has been working on mortgage reforms due to worries that high interest rates and affordability requirements are discouraging people from purchasing a home.

Interest rate stress test regulations were already loosened by the regulator in March 2025.

However, in an effort to help self-employed people and first-time buyers move up the real estate ladder, the FCA has proposed a number of new measures that it will consult on early next year.

The executive director for payments and digital finance, David Geale, stated: "We have worked quickly this year to improve outcomes for customers seeking a mortgage.

"Well, use industry and consumer insights to push for additional reforms and rebalance risk, expanding access to reasonably priced mortgages to satisfy today's consumer needs. A "

In 2026, mortgage regulations may change as follows.

Simplifying lending regulations for mortgages.

When applying for a mortgage, borrowers now have to deal with challenging affordability evaluations and interest rate stress tests.

It can be challenging for borrowers who have not worked for a long time or whose income is erratic to get a home loan approved.

The FCA is attempting to address that by making its lending regulations more flexible.

Loan-to-income (LTI) ratios are among the major problems. Historically, mortgage lenders have been limited in their ability to lend more than 4.5 times the borrower's income. When home price growth exceeds wage inflation, it may become more difficult to obtain a home loan.

The Financial Policy Committee (FPC) suggested in July 2025 that the FCA and the Prudential Regulation Authority permit individual lenders to raise their lending share at LTI ratios of at least 4.5.

Numerous banks have already begun increasing their LTIs, and the FCA stated that it is developing a new policy that will be discussed in the upcoming year.

Making sure mortgage lenders take rental payments into account as proof of affordability is another change.

In order to help self-employed individuals with erratic income, the FCA stated that it will also consider supporting greater payment flexibility beyond lenders simply requiring "monthly payments" in their loan documentation.

Changes to interest-only mortgage lending.

Since mortgage regulations were implemented in 2014 in the wake of the financial crisis, interest-only lending has been reduced.

Since there are no repayments, an interest-only loan may be less expensive, but the regulations currently demand a reliable repayment plan. Because of this, lenders are hesitant to grant interest-only loans, especially to first-time buyers.

The FCA is currently examining the policy and has stated that it will review regulations regarding what constitutes a credible repayment plan, including the option to take later-life mortgages into consideration.

"This could potentially expand mortgage availability to certain underserved customers, including middle-aged borrowers who may no longer be able to afford a full repayment mortgage," the regulator stated.

Alternatively, a loan that is interest-only or partially interest-only could be used to finance the purchase of a home with the intention of utilizing a lifetime product in the future. The "

In response to the proposals, Mary-Lou Press, president of the National Association of Estate Agents, stated that more flexibility for self-employed people, first-time buyers, and those with non-traditional or later-life income could enable historically underrepresented groups to become homeowners.

"If strong consumer protections are maintained, steps to streamline regulations, update affordability evaluations, and responsibly embrace innovation like rental payment data and AI-driven advice could make a meaningful difference," she continued. The fact that the great majority of mortgages are still in arrears demonstrates both the basic soundness of the current system and the possibility of carefully expanding access without raising risk.

"Reforms should be implemented gradually, along with clear guidance and openness, as affordability pressures lessen and lenders adjust to changes in stress testing. In order to promote sustainable home ownership in the present and the future, it will be crucial to make sure that customers are fully aware of their options, especially with regard to interest-only, part-repayment, and later-life loans. The "

Review of equity releases.

Older borrowers may be able to access funds secured by their property with the aid of equity release.

However, the FCA suggests that the minimum age of 55 may conflict with the fact that more people are taking out mortgages later in life.

High interest rates, low consumer awareness, and a lack of competition among specialized advisors have all been criticized in relation to equity release products.

In order to determine whether equity release products can and will evolve to satisfy the growing and varied needs of consumers in the future, the FCA announced that it will carry out a market study.

"Reforming the mortgage market can help address the fact that we as a society are saving too little for later life, yet people have huge wealth tied up in property," Geale continued. A "

"The FCAs' recognition that housing wealth will play an increasingly important role in later life financial wellbeing is both timely and necessary," said David Burrowes, chair of the Equity Release Council. For many older homeowners, later life loans are now a sensible and responsible way to manage debt, support retirement income, or stay in their own homes longer rather than a specialized option. The "

"The FCAs roadmap identifies longer mortgage terms, pension under-savings, and demographic shifts as structural issues facing the UK and calls for more work to make sure the later life lending market is prepared to meet rising demand. The "