The Financial Conduct Authority (FCA) has set out proposals to reform mortgage lending rules, including proposed changes to how affordability is assessed for those with credit issues.
The regulator said the changes could benefit groups including first time buyers, older borrowers and the self employed by giving lenders greater flexibility to take account of individual circumstances when assessing applications.
Under the proposals, lenders would face fewer barriers when offering flexible repayment arrangements to borrowers with variable incomes, such as the self employed, and to those paid in foreign currencies.
The FCA is also seeking to encourage firms to assess affordability based on a borrower’s current financial position, rather than automatically excluding applicants because of minor or historic credit issues.
Other proposed changes include updating affordability guidance for retirement interest only mortgages, which the regulator said could make it easier for older homeowners to access housing wealth, and revising rules on interest only and part interest only lending to provide greater flexibility while retaining repayment safeguards.
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.”
The consultation forms part of the FCA’s wider programme of mortgage market reform, first outlined in December 2025. The regulator said the proposals build on standards introduced across the market in recent years, including the Consumer Duty, while seeking to improve access to mortgage borrowing.
As part of the consultation process, the FCA is gathering feedback from consumers through an online tool alongside responses from firms and other stakeholders. The consultation closes on 28 July 2026.
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.”
Tony Müdd, third party products & services director at St. James’s Place, says: “The FCA’s proposals are a positive and practical development that should deliver real benefits for clients. By giving lenders more flexibility to assess affordability based on individual circumstances, rather than rigid rules around past credit issues or variable income, many more self-employed clients, first-time buyers, and older homeowners will find it easier to access the mortgage they need.
“Professional advice however will remain essential to navigate these options safely and align them with individual circumstances. This rebalancing should support more clients in achieving their financial goals.”
Karen Noye, mortgage expert at Quilter, said the proposals would be a ‘delicate balancing act’ between widening access and allowing borrowers to make unsustainable commitments. She added: “The proposals from the FCA acknowledge that the mortgage market has failed to keep pace with how people live and work today, and allowing greater flexibility in assessing affordability and repayments could help prospective borrowers who have more complex incomes such as the self-employed. Current affordability assessments can be limiting for those looking to get onto the property ladder, and a shift towards a more holistic approach whereby someone’s full current financial situation is considered, rather than historical credit issues immediately closing the door to homeownership, would be a positive step forward.”
Richard Pinch, head of banking and credit advisory at Broadstone said the proposals were a ‘sensible evolution’ that better reflected the realities of modern borrowers. He said:
“The regulator is seeking to give lenders greater flexibility through affordability assessments that better reflect real borrower behaviour and lifetime earnings patterns. 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.”