The FCA has responded to government calls for regulators to support growth in the mortgage market, outlining a series of regulatory changes it plans to introduce throughout 2025.
At the start of the year, in a letter to the Prime Minister, Chancellor, and Secretary of State, FCA Chief Executive Nikhil Rathi proposed areas for reform. On March 7th 2025, the FCA has set out steps it will take to help improve access to mortgages.
The following actions are currently being put in place, with the FCA moving quickly to align with the government’s pro-growth agenda:
Mortgage interest rate stress test rule: reminder of flexibility and launch of call for evidence
The FCA is concerned that the current market approach to interest rate stress testing may be unduly restricting access to otherwise affordable mortgages. As it stands currently, the FCA has flagged that many lenders currently stress test affordability by adding a margin to their current reversion rate. Where that reversion rate does not take account of future market expectations, this may result in an unnecessarily high stress test.
To address its concerns, the FCA has published a reminder of the flexibility within its existing rules (specifically, MCOB 11.6.18R). The FCA highlights that MCOB 11.6.18R does not prescribe which rate(s) a lender should take account of when designing a stress test.
It expects firms to apply an appropriate approach, considering the impact of expected interest rates on the customer’s ability to make payments.
Open Finance Sprint – March 2025
During March the FCA has worked with a wide range of experts, including from within the mortgage sector, as part of its Open Finance Sprint. It will consider how improved smart data sharing can enhance products and services and inform its thinking on the future technological and regulatory framework.
Consultation on rules simplification – May 2025
In May 2025, the FCA will consult on proposals to make it easier for consumers to:
- remortgage with a new lender
- discuss their options with a firm outside a regulated advice process
- reduce their overall cost of borrowing through term reductions; and
The FCA will also discuss modifying guidance where it considers that Consumer Duty now ensures consumers are protected, such as its maturing interest-only mortgage guidance.
Future of the mortgage market public discussion – June 2025
In June 2025, the FCA will launch a public discussion. To discuss:
- alternative affordability testing and product innovation
- risk appetite and responsible risk-taking
- lending into later life and
- consumer information needs.
Throughout these actions, the FCA will continue to work closely with HM Treasury and the Bank of England, including the Financial Policy Committee and the PRA.
The mortgage industry is heartened with this government push for relaxing red tape and helping to improve affordability by reviewing current rules.
Henry Knight, Managing Director of Springtide Mortgage Brokers comments:
“It is very positive that the market regulators are now considering what a review of mortgage affordability could look like. Regulatory change could be hugely significant, particularly for first-time buyers, as affordability has been a significant, long-standing issue. It is very encouraging that these initiatives are supported by both the government and the regulators, as this joined up approach will create options more quickly for people looking to buy or move home’.”
In its letter to the Economic Secretary, the FCA emphasises that consumer protection and responsible lending will remain ‘core principles’ as it looks to refine and simplify current mortgage standards in line with an outcomes-based approach underpinned by the Consumer Duty.
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Sources:
- Government considers relaxing mortgage affordability rules to support first-time buyers | Financial Reporter
- FCA letter on a new approach to ensure regulators and regulations support growth
- FCA sets out steps to support home ownership | FCA
- Interest rate ‘stress test’ rule – application of MCOB 11.6.18R | FCA
- Consumer Duty | FCA