FCA paper a ‘pivotal moment’ in UK mortgage market transformation

In a statement (41-page / 658KB PDF) setting out its response to feedback received to its June 2025 discussion paper on the future of the mortgage market, the FCA committed to a series of actions aimed, among other things, at improving access to mortgages for first-time buyers, enhancing later life lending, and enabling innovative and digital processes in the market.

Jo Owens of Pinsent Masons, a specialist in retail financial services regulation, said: “Delivering meaningful improvements in the mortgage market requires collective action from all stakeholders, including regulators and policymakers. House prices and affordability constraints continue to lock out many first-time buyers, while older borrowers face limited product options and complex later life lending needs amid uncertain retirement incomes. A system-wide response is essential to create flexible, inclusive solutions that support sustainable homeownership across all stages of life, while ensuring that efforts to increase lending and offer greater innovation do not expose lenders to adverse findings from the Financial Ombudsman Service.”

"The feedback statement marks an important moment for the UK mortgage market as it signals an opportunity to reshape lending for the future – making homeownership more accessible for first-time buyers and creating smarter solutions for later life borrowers. It could be the start of a transformation that will redefine how the industry serves consumers across all life stages,” she said.

To help first-time buyers, the FCA and the Prudential Regulation Authority (PRA) are reviewing loan-to-income ratio requirements on lenders, which could provide them with more flexibility to lend to those with smaller deposits. The FCA’s rules on responsible lending are also expected to be updated next year, while further reform of the requirements lenders face when providing interest‑only mortgages are also under consideration, as are changes to how affordability is to be assessed where a prospective borrower is looking to take out a part interest-only mortgage.

The regulator’s feedback statement identified how demographic and economic change is “likely to create more demand from homeowners to access their housing wealth in later life”. With this particular context in mind, the FCA intends to carry out a focused market study in 2026 “to assess if the market can and will develop to meet the increased and differing needs of consumers in the future”.

The FCA said: “Borrowers may need to use their housing wealth to support their retirement, long‑term care needs and achieve financial security in later life. Releasing equity through downsizing, whilst an important alternative to a mortgage, was seen by some as increasingly uneconomical given transaction costs and inheritance tax implications in some circumstances, in addition to limited supply of desirable alternate housing options. Safe and fair value access to housing wealth could deliver wide ranging social and economic benefits.”

However, the regulator acknowledged that there are challenges to overcome to enable this – including over the cost and scope of advice and number of active later life lenders and advisers in the market. While some changes to how retirement interest‑only (RIO) mortgages are regulated could be set out in the second half of 2026, the FCA wants to separately look at the need for regulatory reform to enable “more holistic advice” to be delivered to consumers when they are planning for and making decisions about their “later life finances”.

The concept of ‘holistic advice’ still to be clearly defined by the regulator, but some respondents to the discussion paper “advocated for a truly integrated approach that brings together lifetime mortgages, pensions and investment advice”, the FCA said.

The FCA intends to issue a policy statement in relation to later life lending in the second half of 2027.

Further reforms to disclosure and financial promotion rules are under consideration to “support innovation and smoother digital journeys” in the mortgage market are also under consideration, while the FCA said it also stands ready to ensure the regulatory regime supports steps the government might take to digitise house buying and selling processes – including by streamlining anti‑money laundering checks.

Jo Owens of Pinsent Masons said: “The FCA has reaffirmed its commitment to the growth agenda and to building a mortgage ecosystem that drives trust, supports innovation, digital transformation, home ownership, and retirement planning.”