The Financial Conduct Authority has shared a discussion paper on the future of the mortgage market and is seeking a public conversation with experts and consumers on potential updates to lending rules.
First-time buyers, the self-employed and people borrowing into retirement could all benefit from possible changes, as the FCA explores how it can support wider access to sustainable home ownership. Ensuring the regulatory framework and market can cope with an expected increase in demand for later life lending and rebalancing the collective risk appetite in mortgage lending are also up for discussion.
David Geale, executive director for payments and digital finance at the FCA, explained:
“We want to evolve our mortgage rules to help more people access sustainable home ownership. Having achieved higher standards in the market, now is the time to consider allowing more flexibility in a trusted market.
“Changing our mortgage rules could make it easier for people to get onto the property ladder and manage mortgages into retirement. We can’t solve all the issues related to home ownership. But we’re playing our part in helping people better use the mortgage market to navigate their financial lives and to encourage a dynamic, innovative and competitive market.
Changes to lending following the 2008 financial crisis have led to a more resilient market, the FCA says, with over 99% of mortgages originated since 2014 ‘on track’. However, the FCA acknowledges the rules ‘may have unduly restricted consumer access to the market’, particularly those without access to financial support from family.
The organisation noted in its discussion paper:
“We want a well‑functioning mortgage market where all borrowers who can afford to repay can access the mortgages they need. This means enabling firms to offer products which are better tailored to consumers’ needs, while continuing to help ensure a sustainable mortgage market which maintains the core lessons from the 2008 crisis.
“Responsible lending, in line with our consumer protection objective, will remain core to our regulatory framework.”
The review has been welcomed by industry experts, with Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, calling it a ‘once-in-a-generation opportunity’ to reshape the mortgage market.
He commented:
“Since the financial crisis, it is clear that the regulatory pendulum has swung too far towards caution, prioritising detailed rules at the expense of access to the benefits of home ownership for many creditworthy families… Alongside the Government’s promised long-term housing strategy, this review provides a crucial opportunity to shape the UK mortgage market for the next decade and beyond.
“Over the summer we will engage with our members and carefully consider our response. I expect some very lively discussions as we explore both the risks and opportunities across all areas of mortgage regulation. In doing so, it’s important that we don’t jeopardise the consumer confidence and trust we have built in the mortgage market since 2008, but we must be radical and ambitious in our thinking to ensure we achieve a framework that enables us to support more people on their homeownership journey both now and in the future.”
Michael Shand, managing principal at consultancy Capco, believes the review offers ‘a pivotal moment’ for lenders to embrace the use of innovation to offer relevant products for the changing needs of borrowers. He said:
“If implemented effectively, these changes could give lenders the ability to be more precise and thoughtful in how they tailor products and services for today’s more complex borrower profiles. And there is an opportunity for firms to leverage data and technology to meet these needs more precisely. The smarter use of data, analytics and insights can enable firms to personalise risk assessments, better understand target segments and develop solutions that are both competitive and inclusive.”
However, Shand warned lenders that they also have a responsibility to borrowers and must ‘think carefully’ about managing risk for those with uncertain incomes or later in life. He added:
“Ultimately, to make the most of this moment firms need to think strategically, not just about how they meet today’s consumer needs but how they build for the future. That means using data and technology to offer more personalised, flexible products, while also strengthening their approach to risk. Done well this review could unlock real innovation in how mortgages are designed and delivered.”
Charles Roe, director of mortgages at UK Finance, welcomed the changes and said ‘mortgage firms will always lend responsibly’. He commented:
“We look forward to working with our members to identify ways the FCA could amend its rules to help more individuals get on to, and move up or down the housing ladder.”
Feedback on the discussion paper will close on 19 September. Before recommending any changes to its rules, the FCA says it will focus on how consumers and the market are protected.
The discussion paper and questions are at https://www.fca.org.uk/publications/discussion-papers/dp25-2-mortgage-rule-review-future-mortgage-market
