Financial Watchdog Moves to Simplify UK Mortgage Rules

The FCA launches a consultation to make mortgages more accessible and flexible. What changes are coming, and how might they reshape the property landscape?

In early May, the Financial Conduct Authority (FCA) announced a wide-ranging consultation aimed at simplifying the UK’s mortgage rules. The goal is clear: make it easier for consumers to secure and modify mortgage loans, while keeping lenders accountable and competitive.

For years, UK mortgage regulation has been seen as cautious, sometimes to the point of exclusion. Stress tests, rigid affordability assessments, and complex product switching procedures have locked many people out of the market — particularly first-time buyers and those with irregular incomes.

Now, with inflation easing and the housing market searching for stability, the FCA wants to remove friction from the system without inviting unnecessary risk. For buyers, brokers, lenders and developers, the proposals could signal a significant shift in how mortgages are underwritten, modified, and managed.

This article explores what the FCA is proposing, why it matters, and what it could mean for the broader property market in the months and years ahead.

Why Reform Is on the Table Now

Mortgage accessibility has become a flashpoint in recent years.

1. Affordability Tests Are Blocking Buyers

Post-2008, mortgage rules tightened significantly. Stress testing was introduced to ensure borrowers could withstand sharp interest rate rises.

But in the current environment — with rates stabilising and wage growth uneven — many applicants who could comfortably manage monthly payments are being declined due to outdated affordability metrics.

2. The Market Is Slowing

Mortgage approvals and transactions have dipped, largely due to affordability constraints and economic uncertainty. Lenders are under pressure to offer more flexible products and faster approvals.

3. Political Pressure Is Mounting

There is a broader push across UK financial regulation to promote growth and competitiveness. Simplifying mortgage rules aligns with the government’s desire to make the UK more attractive for financial services and investment.

The FCA’s consultation is part of this wider regulatory overhaul, which includes pensions, insurance, and capital markets.

Key Areas Under Review

While the consultation is ongoing, early signals from the FCA indicate several specific areas under review.

1. Easier Product Switching

Under current rules, many borrowers — particularly those with poor credit or irregular income — struggle to switch to better mortgage deals even if they are not borrowing more.

The FCA wants to make product transfers simpler and faster, especially for existing borrowers with good repayment histories.

This could help reduce the so-called “mortgage prisoner” problem, where borrowers are trapped in expensive products due to legacy affordability rules.

2. More Proportional Affordability Checks

The regulator is exploring whether affordability checks can be scaled based on borrower type, loan-to-value ratio, and other risk factors.

This would allow more flexibility in lending to self-employed individuals, older borrowers, and those with variable income — all groups currently under-served.

Lenders would still be required to act responsibly, but the approach would become more tailored rather than one-size-fits-all.

3. Faster and Simpler Mortgage Approvals

The FCA is considering whether technology can play a greater role in speeding up mortgage underwriting — especially through open banking data and real-time income verification.

This could reduce friction for buyers, lower costs for lenders, and shorten transaction timelines across the market.

What This Means for Buyers

If implemented, these changes could significantly improve access to mortgage products for a wide range of consumers.

• First-time buyers may find it easier to qualify based on actual expenditure and earnings rather than hypothetical stress tests
• Existing borrowers with strong payment history could switch products without starting the full application process again
• Self-employed and freelance workers may benefit from more nuanced affordability assessments that reflect variable income

The result could be a more inclusive market that better reflects the reality of modern work and lifestyle patterns.

Implications for Lenders

While the reforms are broadly supportive of increased lending, they also introduce new responsibilities for banks and building societies.

Lenders will need to:

• Upgrade technology systems to incorporate faster data processing
• Train staff to apply nuanced affordability frameworks
• Ensure robust compliance in a more flexible regulatory environment

Some lenders may see this as a competitive opportunity, offering streamlined digital services and smarter underwriting tools to capture market share. Others may be slower to adapt, risking customer attrition.

How Will This Affect the Property Market?

The ripple effects of mortgage reform could be substantial.

1. Increased Market Activity

Simpler mortgage access usually translates to higher transaction volumes. If more people can qualify for loans, demand for entry-level and mid-tier housing is likely to increase.

This may help stabilise prices in areas that have cooled recently, particularly where affordability was a limiting factor.

2. Renewed Confidence for Developers

Developers and housebuilders may respond to increased mortgage availability with greater confidence to launch new schemes, especially for first-time buyer and shared ownership segments.

Improved buyer access reduces the risk of unsold units, making funding and delivery more predictable.

3. More Fluid Remortgaging and Downsizing

Older homeowners or those looking to restructure finances may find it easier to move, remortgage, or release equity under the new rules.

This could unlock housing stock and support better flow across all age groups and price brackets.

Risks and Considerations

As with any deregulation effort, there are risks that need careful management.

• Overstretching borrowers: Easing rules must not lead to irresponsible lending. Close monitoring and ongoing stress testing will still be vital
• Systemic risk: Banks and regulators must be vigilant for signs of over-leverage or speculative borrowing, particularly if interest rates shift again
• Data privacy: Wider use of open banking data raises questions about consumer consent and data protection that must be addressed clearly

A well-designed reform package can reduce exclusion without fuelling excess.

What Should Property Professionals Do?

As the consultation progresses, developers, brokers, and investors should prepare for possible changes.

1. Watch Lender Behaviour

Some lenders may act ahead of regulation, trialling new affordability models or fast-tracking low-risk applications. Pay attention to what’s changing in real time.

2. Update Client Messaging

If rules change, buyers will need help understanding how much they can borrow and how fast they can move. Clear communication and updated affordability tools will become valuable assets.

3. Work Closely With Brokers

Mortgage brokers will play a key role in interpreting lender criteria. Build relationships with advisers who understand the changing landscape and can help clients navigate it.

Final Thought

The FCA’s push to simplify mortgage regulation is timely. For years, well-meaning rules have unintentionally locked thousands out of homeownership or trapped them in expensive deals.

Reform, if done properly, can balance consumer protection with access and flexibility. For the property industry, this could unlock new buyers, speed up transactions, and reignite confidence in a market that has at times felt sluggish.

As always, execution will be everything. The industry must stay engaged, informed, and ready to adapt — because change is coming.