21 July 2025
If you are covering the FCA’s mortgage rule review, please see the following comment from Karen Noye, mortgage expert at Quilter:
“The Financial Conduct Authority’s (FCA) changes to its mortgage rules, which come into effect immediately, mark what will hopefully be the start of much-needed progress for borrowers who stand to benefit from a less stringent and more efficient process.
“As part of this, the FCA has announced it will remove the requirement for a full affordability assessment when reducing the term of a mortgage, and is amending modified affordability assessments to include new mortgage contracts with new lenders where the product is more affordable for the customer. Alleviating some of the barriers customers have been facing when trying to access a more affordable product is a step in the right direction, but the fact that this change has had to be written in shows just how rigid affordability testing has become.
“When it comes to reducing their mortgage term, customers will no longer face such stringent affordability tests in order to help them lower the total cost of borrowing and reduce the risk of needing to repay their mortgage well into retirement. In recent years, there has been a marked increase in the number of borrowers taking out lengthy 35-40 year mortgages, many of which take them past retirement age. This risks putting immense pressure on already stretched retirement pots, particularly in light of the government’s latest data which suggests future retirees are on track to be significantly poorer than today’s. However, while reducing a mortgage term can help avoid this, taking such action will typically result in an increase to monthly mortgage payments, so it may not be a suitable option for everyone. In some cases, for example, rather than reducing the mortgage term it may be better to maintain the length of the mortgage to keep the committed monthly payment down, but to overpay which will in turn reduce the mortgage term and lower the amount of interest paid.
“It is clear that mortgage affordability is moving up the agenda for the FCA and the government, with the Treasury recently announcing that the mortgage guarantee scheme will be made permanent. While the changes announced today will help to make things simpler for those able to access cheaper mortgage deals, it does not reduce the impact of tough affordability criteria on those looking to take their first steps onto the property ladder or those who have a higher loan to value on their property.
“While lenders had been trimming rates in anticipation of further base rate cuts, the higher-than-expected CPI figure released this month may delay that trajectory. For buyers, this means affordability remains a key constraint – regardless of these changes - particularly for those relying on fixed-rate deals to manage stretched budgets. Ultimately, seeking professional mortgage advice will be key to ensuring you find the best deals and make the best possible choices for your circumstances.”
