UK FCA Proposes Mortgage Rule Reforms to Help First-Time Buyers and the Self-Employed

The UK's Financial Conduct Authority (FCA) is pressing ahead with what it describes as the most ambitious overhaul of its mortgage rulebook in a generation. On June 9, 2026, the regulator published Consultation Paper CP26/18, 'Mortgage Rule Review: Supporting first-time buyers and underserved consumers,' setting out a package of proposed rule and guidance changes designed to open mortgage access to borrowers who are currently excluded from the market.

The proposals target several groups that have historically struggled to obtain mortgages despite being creditworthy: first-time buyers who cannot raise large deposits or lack family support, self-employed people and those with variable or irregular incomes, later-life borrowers, people paid in foreign currency, and those recovering from past credit impairment. The FCA's central argument is that lending standards tightened significantly after the 2008 financial crisis — improving market resilience and reducing arrears — but may now be preventing some genuinely creditworthy borrowers from accessing suitable products.

Key proposals include greater flexibility around interest-only and part-and-part mortgages, with the FCA proposing to remove the requirement to demonstrate a credible repayment strategy where the interest-only element is below 25% of the lender's valuation, and introducing tiered thresholds above that level. The FCA also proposes encouraging lenders to assess affordability based on a borrower's full and current situation rather than automatically excluding people for minor or historic credit issues, and reducing barriers to flexible repayment schedules for those with variable income. For retirement interest-only (RIO) mortgages, the FCA proposes removing guidance requiring firms to assess whether a surviving joint borrower could continue payments if the other dies.

Importantly, the FCA stresses that the proposals are permissive rather than deregulatory — they give lenders greater discretion to widen access where it aligns with their risk appetite, while retaining core affordability requirements, prudential safeguards, and the Consumer Duty. The regulator acknowledges that some increase in arrears may result from this 'risk rebalancing' but expects it to be contained by existing protections. Alongside the consultation, the FCA published analysis showing that self-employed borrowers and those with credit impairment histories show higher arrears rates. The consultation closes on July 28, 2026, with a Policy Statement expected in the second half of the year — meaning implementation timelines could be relatively short once rules are confirmed.