The UK's financial regulator is planning a significant shake-up of mortgage rules that could make it easier for millions of people, including freelancers and gig economy workers, to get on the property ladder.
Flexible Payments for Variable Incomes
In a major review, the Financial Conduct Authority (FCA) is exploring ways to help those with "variable or irregular" incomes, such as the self-employed and contractors. One key proposal is to free them from the rigid requirement of making monthly mortgage payments.
Instead, lenders could offer alternative payment schedules, allowing individuals to vary their monthly amount or make larger payments less frequently. For example, a borrower might pay £2,000 every two months rather than £1,000 each month.
The FCA stated that some of its existing rules, which refer specifically to "monthly payments", may be acting as a barrier to this kind of product innovation. The watchdog has committed to reviewing and updating this wording.
Widening Access for Underserved Groups
The regulator's review found wide agreement that several potential first-time buyer groups "could be better served" by the current market. These groups include:
- Those who cannot afford a large deposit.
- Self-employed individuals and freelancers.
- People recovering from a negative life event.
- Applicants with a past negative mark on their credit file.
To assist these borrowers, the FCA is examining how to give more recognition to a consistent record of paying rent during affordability checks. Some consumers have expressed frustration when a lender deems a lower mortgage payment affordable than the rent they are already successfully paying.
Furthermore, the FCA is concerned that some lenders may be applying its definition of a "credit-impaired customer" too broadly, potentially excluding people whose adverse credit issues have been resolved.
Reviving Interest-Only and Later-Life Lending
In another notable move, the regulator is exploring ways to make interest-only mortgages more accessible. These products, which were hugely popular before the 2007-08 financial crisis, are now viewed as a potential option for some consumers who struggle to afford a traditional repayment mortgage.
Looking to the future, the FCA also plans to boost the "later life lending" market, including equity release. This reflects the trend of more people taking out mortgages that extend beyond the state pension age.
Emad Aladhal, the FCA’s retail banking director, emphasised that people's financial lives are changing. He warned that today's home ownership affordability challenges "may be creating problems for the future".
"In a world where pension income is less reliable, housing wealth will be more important to financial wellbeing," Aladhal stated, explaining the drive to widen access to affordable borrowing.
This regulatory push follows recent changes that have already allowed some banks to offer larger mortgages, after the FCA intervened on lenders' stress test requirements.
Separately, Nationwide building society predicted that UK house prices could rise by up to 4% next year, though it suggested getting on the property ladder may become slightly less difficult.
