Older homeowners could unlock more cash under mortgage shake-up

The City regulator has unveiled plans to make mortgages more accessible for older borrowers, first-time buyers and self-employed workers who can often struggle to secure home loans.

According to the Financial Conduct Authority (FCA), the current mortgage market has failed to keep pace with changing lifestyles, longer working lives and modern employment patterns, leaving some groups underserved.

The proposed reforms would give lenders greater flexibility to assess borrowers based on their individual circumstances while maintaining safeguards for consumers.

Under the plans, lenders would face fewer barriers when offering flexible repayment options to people with variable incomes, such as freelancers and contractors.

Borrowers paid in foreign currencies could also find it easier to access mortgage products.

The FCA is also encouraging lenders to look at an applicant's full financial situation when assessing affordability, rather than automatically ruling them out because of minor credit issues or problems from the past.

The proposals form part of the regulator's wider plans to modernise the mortgage market and better reflect the needs of today's borrowers.

The consultation remains open for responses until 28 July 2026, with new rules potentially taking effect later this year.

Older homeowners stand to gain substantially from updated affordability guidance specifically targeting retirement interest-only mortgages.

These products enable pensioners to release equity accumulated in their properties to supplement retirement income.

The regulator is also proposing to ease strict affordability criteria for couples seeking joint retirement mortgages, removing obstacles that have previously prevented many from accessing such products.

The FCA stated that longer life expectancies and evolving employment patterns necessitate modernised lending rules.

David Geale, the FCA's executive director for payments and digital finance, said: "We're living longer and how many people work has changed. Our mortgage rules need to keep pace so those who can afford to repay can borrow."

Interest-only mortgages, which require borrowers to pay only the interest during the loan term before settling the original sum as a lump sum upon completion, would become more accessible under the proposals.

The FCA is suggesting that where the interest-only portion represents less than 25 per cent of a property's value, purchasers would no longer need to demonstrate a credible repayment strategy.

Such mortgages have proved controversial historically, with some borrowers later finding themselves unable to repay the capital, prompting tighter affordability requirements in 2014.

The consultation document acknowledged that while interest-only lending could assist first-time buyers onto the property ladder, the proposed changes remain targeted rather than making such products universally available.

Research by Pepper Money found that 75 per cent of self-employed workers face difficulties obtaining mortgages due to income evidence requirements imposed by major lenders.

Sarah Coles, head of personal finance at AJ Bell, said: "Self-employed people with lumpy incomes have been forced to contort their finances into paying the same sums each month under existing rules. A change could allow them to access products that are flexible enough to fit around their lives and their needs instead."

Karina Hutchins, director of mortgages at UK Finance, said: "These proposals update existing guidance and give lenders greater flexibility to support customers' evolving needs.

"They also support the Government's pro-growth agenda by removing barriers to finance and helping more prospective home buyers on to the property ladder."