The Financial Conduct Authority is consulting on relaxing mortgage rules for older borrowers, first-time buyers and the self-employed. The consultation comes ahead of the outcome of its later life mortgage market study that was launched in March.  

The new consultation proposes giving lenders more flexibility to offer mortgages to older homeowners, people with variable income, those paid in foreign currency, people with minor or past credit history issues, and around interest-only mortgages. It is open until 28 July.  

“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. Stronger protections mean we can now safely widen access to mortgage borrowing for those that may be underserved,” said David Geale, the regulator’s executive director for payments and digital finance.  

The FCA said that it “can be too difficult” for homeowners to access their housing equity in later life. It pointed out that 43% of working age people are thought to be undersaving for retirement, arguing that “better access to accumulated housing wealth could be key to helping these people achieve their financial goals in later life”. 

The watchdog is now proposing that for joint retirement interest-only mortgages, lenders no longer assess the ability of a sole person to make the payments – in case the other dies – but to assess eligibility in the same way as standard mortgages. 

It said it wants to make this change because sales of RIO mortgages remain low compared with lifetime mortgages and standard mortgages for people aged 55 and over, saying this shows there is demand from older borrowers; it also noted that fewer than 1% of RIO mortgages are in arrears. The regulator expects that the number of consumers taking out lifetime and standard products will reduce if RIO eligibility is expanded, noting that RIO mortgages do not erode housing equity or have a defined repayment period, reducing the worry about passing on wealth or a cliff-edge. 

Aside from expanding eligibility among older borrowers, the FCA’s proposals aim to give people with variable income easier access to a mortgage. 

The self-employed have similar levels of wealth to private sector employees who are not currently saving into defined benefit pensions, despite lower earnings, according to the Institute for Fiscal Studies, and hold more of their wealth in housing than employees.

The proposals in the consultation are part of the FCA’s plans to reform the mortgage market, set out last December. The government has been seeking to relax mortgage rules. 

The Bank of England base rate has remained at 3.75% this year, but UK annual house price growth reduced to 1.7% in May, from 3% in April, and fell by 0.6% month on month, according to Nationwide. The lender attributes the slowdown to faltering consumer confidence as energy prices are going up due to the war in the Middle East. 

UK consumers' wariness amid an increasingly volatile world has helped boost their financial buffers, with household debt currently at its lowest in about two decades. The slower housing market, combined with rising earnings, meanwhile, mean housing affordability has improved.