The Financial Conduct Authority (FCA) has unveiled proposals aimed at widening access to mortgages for groups it believes may currently be underserved by the market, including first-time buyers, older borrowers and self-employed people.
The regulator said the proposed changes are intended to ensure mortgage rules reflect modern borrowing needs and could help more creditworthy consumers access homeownership. The consultation includes measures to expand access to interest-only and part interest-only mortgages, support lending in later life and encourage lenders to take a more individualised approach when assessing affordability.
Under the proposals, lenders would no longer be required to obtain a credible repayment strategy where the interest-only element of a mortgage represents less than 25% of the property’s value. The FCA said the change could help some first-time buyers access the housing market while maintaining appropriate safeguards.
The regulator is also proposing measures designed to improve access to borrowing in later life. These include recognising follow-on products, such as retirement interest-only mortgages and lifetime mortgages, as potential repayment strategies for interest-only borrowers approaching the end of their mortgage term.
The consultation additionally seeks to reduce barriers for people with variable income patterns, including self-employed borrowers, and those paid in foreign currencies.
Paul Adams, sales director at Pepper Money, said: “We welcome the FCA’s proposal, which recognises that the way people earn and manage their finances has changed. At Pepper Money, we’re already supporting many of the borrowers these reforms are designed to help, including self-employed customers, those with variable incomes and people with historic credit issues.
“Our latest Specialist Lending Study shows why this matters. Rising financial pressures mean 30% of UK adults now have adverse credit, the highest level recorded since the study began nine years ago. Meanwhile, 300,000 self-employed adults with adverse credit expect to be in a position to buy a home within the next three years, yet many remain concerned about their ability to secure a mortgage.
“More broadly, homeownership aspirations remain particularly strong among the self-employed, with our data revealing that 80% hope to own a home, compared with 73% of full-time employees and 66% of part-time workers. The way people earn an income has evolved significantly, and the mortgage market must continue to evolve alongside it.
“As a specialist lender, we’re well placed to help underserved but creditworthy borrowers access finance in a responsible and sustainable way. We encourage prospective borrowers to speak to a mortgage broker to understand the options available and find the right solution for their bespoke circumstances.”
Julian Sampson, partner and head of lending department at TWM Solicitors, added: “There are still significant parts of the UK’s population who struggle to access competitively priced mortgages so any encouragement from the regulator which will support mortgage innovation should be welcomed.”
“The elderly and the self-employed are two critical markets that are expected to continue to grow. The tough economy of the last few years has meant a lot of people picking up minor marks against their credit histories that don’t reflect their current ability to service a mortgage.”
“The rise in credit repair lending is a necessary reflection of the economic climate, and having a regulator who can acknowledge the difficulties of adverse borrowers within a supportive and transparent framework can only be a positive sign that credit repair lending, managed well, must be a viable pathway for borrowers looking to move past previous credit issues..