Self-employed borrowers and those with past credit issues are among the groups who should find it easier to get a mortgage under rule changes proposed by the Financial Conduct Authority (FCA).
Mortgage rules must “keep pace” with homeowners’ changing lives, said the FCA, as it released consultation paper CP26/18 on its proposals.
Self-employed, gig economy, contract and locum workers, and those with seasonal and irregular income, are under-served by the mortgage market, according to the regulator. Its product sales data from 2025 shows that around 6% of mortgage sales included at least one borrower recorded as self-employed – yet around 13% of the workforce work for themselves.
It wants lenders to exercise more discretion in the way they assess affordability to accommodate them.
Lenders are already allowed to agree to payment terms other than monthly instalments to support those on variable or irregular income. To encourage them to use these flexibilities, which could include quarterly or other regular payment intervals, the FCA wants to change references made to monthly payments in its handbook to contractual payments instead. This would be supported by examples of evidence sufficient to support an affordability assessment.
The FCA said it also supports the use of alternative data from sources such as open banking to build a fully rounded picture of borrowers’ circumstances.
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Writing in the consultation paper, the FCA said: “We want to encourage lenders to innovate using variable payment schedules to support customer needs and help them develop innovative payment structures that align better with consumers’ income patterns.”
Misuse of credit impaired definition
The FCA wants to encourage 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.
The FCA said some mortgage firms are using the definition of a credit impaired borrower beyond the purpose it was developed for – reporting requirements and affordability rules for debt consolidation mortgages.
The definition includes borrowers with either three months’ arrears or more on a previous loan in the last two years, a county court judgment (CCJ) over £500 in the last three years, or being subject to bankruptcy or an individual voluntary arrangement (IVA) in the last three years. The FCA said in some cases, this definition is being used too broadly, beyond assessing customers for debt consolidation.
Consequently, potentially eligible borrowers are being filtered out of the mortgage system even if their circumstances have recovered, denying them access to mainstream lending and pushing them towards higher-priced loans with less favourable terms.
Adverse credit, such as missed payments, is becoming more common, even among high earners – according to a study by Pepper Money, 49% of people earning £100,000 or more reported having adverse credit at some point.
But recovery from those difficulties may be faster than laid out in its handbook definition, said the regulator, which noted improving resilience in its Financial Lives Survey 2024. The black-and-white nature of credit file data that does not allow for context around why payments have been missed and the detriment that can be caused by financial associations through joint accounts with ex-partners can also lead to poor customer outcomes.
“By applying the credit impaired glossary definition within their credit risk policies, firms may not be lending to victim-survivors who might be able to afford mortgages,” it wrote.
The regulator proposes to be explicit in its handbook of when its definition applies, to clarify that it should not be used as an indication of a lack of affordability.
The FCA added: “Historic[al] adverse credit and current/emerging financial difficulties are different considerations; we propose guidance to reflect this.”
The consultation closes on 28 July.