The Financial Conduct Authority has set out proposals to make it easier for first-time buyers, older borrowers and the self-employed to get a mortgage.
The regulator said changes would give lenders more flexibility to consider individual circumstances and develop products that better meet people’s needs.
Proposals include reducing barriers for lenders to offer flexible repayments for people with variable income like the self-employed; encouraging lenders to assess affordability based on a person’s full and current situation rather than automatically excluding people because of minor or past credit history issues and making it easier for older homeowners to unlock wealth built up in their property by updating affordability guidance for retirement interest-only mortgages.
The FCA also proposes updating rules on interest-only or part interest-only mortgages to give lenders more flexibility, while ensuring most borrowers have a clear plan to repay.
David Geale, executive director for payments and digital finance at the FCA, said: “We’re living longer and how many people work has changed. Our mortgage rules need to keep pace so those who can afford to repay can borrow. Stronger protections mean we can now safely widen access to mortgage borrowing for those that may be underserved.”
As part of gathering feedback on the proposals, the FCA is using an online tool to hear directly from consumers about their experiences of the mortgage market. Alongside feedback from firms, the FCA said this will ensure consumers help shape the future approach.
Richard Pinch, head of banking and credit advisory at Broadstone, said: “The FCA’s proposals represent a sensible evolution of the mortgage market, recognising that traditional affordability assessments do not always reflect the realities of modern working patterns, income streams and borrowing needs.
“The proposals could be particularly beneficial for groups that have historically found it more difficult to access mortgage finance, including the self-employed, those with variable income and older borrowers.
“Granting lenders more scope to consider an applicant’s full financial circumstances rather than relying on rigid criteria should help widen access without compromising consumer protection. It could also support the use of more sophisticated affordability modelling, powered by advances in data analytics and AI, meaning lenders should already be considering how they can use these tools to better understand and serve customers’ needs.
“Importantly, the FCA is not proposing a return to the looser lending standards seen before the financial crisis. Instead, it is seeking to modernise the framework to reflect today’s labour market and demographics, while retaining the strong safeguards that have helped underpin the resilience of the mortgage market.”
Sarah Coles, head of personal finance at AJ Bell, also welcomed the announcement.
“Developing products to better suit people’s lives makes perfect sense. Taking a more holistic approach to borrowers will also avoid the current situation where someone who has met all their financial responsibilities for years can be ruled out because of a small mistake they made years ago, when their life may have looked completely different.
“But mortgages are just one part of the picture. A healthy housing market also needs enough affordable properties, plus tax rules that don’t distort buyer behaviour and put people off. The flow of first-time buyers also depends on people being able to build healthy deposits. This can be a huge challenge when they’re also having to cover the cost of sky-high rents.
“The Lifetime ISA has helped hundreds of thousands of people onto the property ladder. The Government is planning to consult on an alternative to the LISA, but if you get in now, you’ll be able to keep using it indefinitely, so it could be worth getting started sooner rather than later.”
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