Significant changes are underway in the UK mortgage market, opening new doors to borrowers. With the Financial Conduct Authority (FCA) leading a review to make lending rules more flexible, the rules provide opportunities for more affordable and accessible mortgages.

Launched under the Consumer Duty initiative, this effort encourages firms to use the flexibility these rules provide to better serve customers. Discussions in May and June 2025 have pushed these reforms forward.

Whether you’re buying your first home, remortgaging, or just seeking guidance, read on to see how these developments could work in your favour.

What Is the FCA’s Mortgage Rule Review?

The FCA mortgage rule review is an initiative to simplify and modernise mortgage regulations in the context of the Consumer Duty introduced in July 2023. Consumer Duty requires firms to minimise potential consumer harm and ensure their business practices are positive and helpful to customers.

The mortgage lending review focuses strongly on:

• Improving customer outcomes and strengthening the mortgage consumer duty: This means fair value, clear communication, and products that meet modern homeowners’ needs.
• Supporting responsible innovation and affordability: Future rules should enable innovations that bring flexibility and affordability. For example, lenders might consider how smart data can reduce loan costs.
• The FCA’s efforts align with the government’s call for regulators to foster economic growth, as outlined in correspondence with the Prime Minister.

What Changes Are Being Proposed?

The high-level goal is to create a more flexible and consumer-friendly mortgage market. Key proposals include:

• Making remortgaging with a new lender easier: Switching mortgages must be simplified. The FCA aims to reduce hurdles like penalty fees and make the process streamlined and transparent.
• Enabling borrowers to reduce borrowing costs: The FCA wants more ways to lower costs; for example, shortening your mortgage term to save interest over the loan’s lifetime.
• Allowing consumers to speak to lenders outside of the regulated advice process: The FCA proposes an environment where loan providers offer more guidance without it being classified as “regulated advice” (which has strict requirements).

What to Expect from the June 2025 Discussion Paper

The June 2025 discussion paper covers several compelling proposals, including:

• Responsible risk-taking and innovation: The discussions emphasise innovation from lenders, including more flexible mortgage products (without compromising consumer protection). Balancing responsible lending and broader loan access is key.
• Alternative affordability testing: With interest rates falling and product innovation increasing, current interest rate stress testing might be restricting access to otherwise affordable mortgages.
• The FCA is considering new ways to assess affordability for creditworthy consumers. Options may include factoring in consistent rent payments and digital income data.
• Lending into later life: The discussions highlight support for borrowers who need mortgages or access to home equity into retirement, or on longer loans.
• Improving consumer information and disclosures: The paper looks at how mortgage terms and risks are communicated. Better information leads to better consumer decisions.

What Does This Mean for Borrowers?

The discussion on the future of the mortgage market signals greater personalisation and flexibility. This is positive overall, but there are potential drawbacks too.

Potential benefits

• Supporting home ownership: Changes to affordability assessments could genuinely help more people secure a mortgage, especially first-time buyers, self employed and those with variable incomes.
• Smoother switching options: Easier mortgage switching helps you find favourable rates and reduce monthly payments.
• Lower borrowing costs through term tweaks: The flexibility to shorten your mortgage term means potentially saving thousands in interest over the life of your loan.
• Better information: The re-evaluation of advice rules should hopefully provide quality information to inform quality choices.
• Personalised mortgage experiences: Mortgage experiences should be less rigid and more adaptable to individual circumstances.

Potential concerns

• Overborrowing: Relaxed affordability might tempt some consumers to over-borrow, causing financial stress.
• Regulated advice challenge: “Regulated advice” must be tightly defined so that lenders and borrowers clearly understand the information exchange.
• Inconsistent advice: Failure to provide high-quality advice across all firms could cause market confusion.
• Implementation and enforcement: The success of these changes depends on how lenders implement them and how the FCA oversees compliance, which remains slightly unclear.

Supporting Wider Responsible Lending

The current FCA rules make it more difficult for certain consumer groups to pass affordability assessments.  The current rules around Interest Rate Stress Tests, Loan to Income (LTI) Ratios and Loan to Value (LTV) criteria set by lenders, along with the high cost of living and earnings not keeping up with increasing house prices, reduces opportunity for First Time Buyers, Self Employed and those on Variable Incomes to obtain a mortgage.

The FCA are considering alternative ways for assessing affordability, including a rent-based approach, to provide these consumer groups with more opportunities for obtaining a mortgage.

Changes to Loan-to-Income (LTI) Rules for Smaller Lenders

The FCA and PRA (Prudential Regulation Authority (PRA) propose to increase the threshold for the Loan-to-Income (LTI) flow limit. Currently high LTI lending (at or more than 4.5 x income) is restricted to 15% of a lender’s total mortgage lending per annum.

Increasing this threshold allows smaller lenders and challenger banks to offer more high-LTI loans, boosting competition and lending flexibility. This change could expand mortgage options, particularly for borrowers seeking higher loans who may have previously been restricted to 4.5x their income.

How Will These Changes Affect Your Mortgage Choices?

You could soon enjoy more relaxed affordability assessments, reduced costs, better advice, and less complicated loan processes. Wins all round!

That said, changes might not happen until 2026, so keep watching the FCA space.

Also, assess your financial situation and make sure you understand your current lender’s policies. Knowledge is certainly power when it comes to making the best mortgage choices for your future.

Speak to a Mortgage Advisor About Your Options

Expert mortgage advice is always valuable, especially during times of regulatory change.

A professional mortgage advisor like Flagstone stays up to date on FCA guidance, lender policies, and all aspects of the mortgage sector. Whenever you’re ready to explore your mortgage options, connect with our team for a personalised consultation.

Let our friendly mortgage advisors help you find the ideal home loan by guiding you through affordability and product choices.