Background
In June 2025, the FCA published a Discussion Paper (DP25/2) on the future of the mortgage market. In December 2025, the FCA also set out its response (FS25/6) to the feedback it received and action it proposed to take as part of our longer-term plan to modernise mortgage rules, which has informed the proposals in this consultation.
Summary
CP26/18 proposes a range of changes that would impact the mortgage market, including:
- Interest-only mortgages – The FCA is proposing three key changes to its existing interest-only framework, in particular: (i) adapting requirements for where a credible repayment strategy is needed; (ii) adding further examples of credible repayment strategy options, and (iii) clarifying expectations of the review requirement and providing examples of trigger points for when to carry out a review.
- Retirement interest-only mortgages – The FCA is proposing to remove current sections of its existing guidance, which would mean affordability for joint retirement interest-only mortgage applications are assessed in the same way as for standard joint mortgages i.e. firms would not be obliged to always consider a sole borrower’s ability to afford the mortgage if the joint borrower passes away.
- Variable and irregular income – The FCA is proposing to expand its guidance to include examples of evidence for assessing affordability for customers with variable or irregular income. In particular, to clarify that lenders may agree payment schedules at a frequency other than monthly, including quarterly or other regular frequencies.
- Credit-impaired or recently recovered – The FCA proposes to be explicit that the definition of ‘credit-impaired customer’ applies only in: (a) the Mortgage Conduct of Business Sourcebook (MCOB) 11.6.16R (additional steps where a credit-impaired borrower uses a mortgage for debt consolidation), MCOB 4.7A.22 G (for the example given when advising in relation to credit-impaired) and (b) SUP 16.12 reporting. As a result, the intention is that firms would be free to set credit risk appetite and target markets but should not treat the glossary definition as a factual indicator of unaffordability.
- Foreign currency loans – The FCA are proposing to differentiate standards and protections for loans denominated in a foreign currency from those where all or part of the income is in a currency other than sterling. The FCA sets out that the intention of this change is to move away from prescriptive, Mortgage Credit Directive derived rules and towards a more proportionate, outcomes-focused framework consistent with the Consumer Duty.
- Bridging loans – The FCA are proposing to amend its Handbook definition of bridging loans which are regulated mortgage contracts to include terms of up to 24 months and also set out that they don’t consider that these proposals in relation to regulated bridging loans overlap or conflict with the statutory exemptions for some types of bridging loans in FSMA 2000 (Regulated Activities) Order 2001. In addition, the FCA are proposing to amend its rules regarding bridging loan extensions, with the total combined term, including the original term and any extensions, capped at 24 months.
Next steps
The FCA sets out that welcomes feedback on the proposals in CP26/18 by 28 July 2026 and will aim to publish a policy statement in the second half of 2026.
The FCA also sets out that it is continuing with policy development across the remaining three themes of the Mortgage Rule Review: enhancing later life lending, enabling innovation and protecting consumers in vulnerable circumstances.