Success of FCA's mortgage market plan depends on collaboration and a 'clear-eyed view' of the practical challenges ahead – Bray

Speaking recently, Nikhil Rathi, CEO of the FCA, painted a picture of a market that is healthy today but must adapt quickly to keep up with technology, changing employment patterns and demographic shifts.

The ambition is right. The mortgage market must evolve to reflect how people now work, earn and retire. But progress must be matched with realism about what the industry and consumers can practically absorb.

The FCA’s reforms in March, which allowed lenders to offer around £30,000 more in borrowing, mark an important step in widening access. The regulator’s own modelling suggests these changes could increase first-time buyer transactions by as much as 24% over the next five years, supporting up to 36,000 more households into ownership each year.

For many aspiring homeowners, particularly those who are self-employed or on variable incomes, this will provide a welcome boost. Yet increasing borrowing capacity without a parallel rise in housing supply risks simply fuelling price inflation rather than improving affordability.

Making mortgages easier to access is only a solution if there are homes available to buy. Without coordinated action to increase supply, reforms designed to open the market could have the opposite effect, further stretching affordability for those already struggling to get on the ladder.

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The recognition that the market continues to exclude key groups such as the self-employed and those with irregular income is long overdue. Even with strong arrears performance and healthy overall competition, too many people find themselves locked out of borrowing because their financial lives don’t fit traditional models.

Exploring interest-only and low-start lending products as part of the solution is a pragmatic step. These options, if responsibly structured and well-advised, could help more people achieve homeownership earlier in life.

But regulators must guard against the risk of reintroducing the very issues that past reforms sought to fix. Any flexibility must be underpinned by rigorous affordability assessment and robust consumer protection.

Technology must be implemented carefully

The FCA’s emphasis on innovation through open finance and artificial intelligence (AI) is particularly encouraging. Smarter data use has the potential to make underwriting more dynamic and inclusive. Initiatives such as using rental payment histories in credit scoring or employing AI to assess affordability could help thousands of creditworthy borrowers currently left behind by blunt criteria.

However, technology is not a panacea.

Greater use of data and automation brings its own challenges around transparency and bias. Lenders and advisers will need to ensure that algorithms enhance human judgement rather than replace it. Consumers must understand how decisions are made about them, and advisers must be equipped to interpret complex, data-driven outcomes in a clear, responsible way.

Encouraging borrowers’ awareness of different options is key

Another critical element of the FCA’s message was around later life lending. As the population ages and defined benefit pensions continue to decline, property wealth is becoming a core component of retirement planning. Advisers are increasingly encountering clients for whom housing equity, pensions and investments are interlinked. Encouraging more flexible lifetime mortgage products and giving advisers the best opportunity to provide holistic solutions for clients will be essential in years to come.

This means providing greater access to knowledge and also systems that cover multiple advice (or product) options, even if those sit outside of their specialism as awareness of a client’s whole financial life is key.

True reform of the mortgage market goes beyond lending criteria. Rathi’s call to digitalise the home buying process, streamline anti-money laundering (AML) checks and modernise the outdated Mortgage Charter reflects a recognition that the system as a whole needs to work more efficiently.

For too long, the industry has relied on fragmented processes and inconsistent data sharing that frustrate both brokers and customers.

Moving towards a digital framework that enables quicker, safer transactions is a logical next step. But it will require coordination across regulators, lenders, conveyancers and advisers, and it must be implemented within achievable timeframes.

The industry is still absorbing the demands of Consumer Duty and adjusting to volatile market conditions. Expecting firms to simultaneously overhaul reporting, data systems and compliance frameworks would be unrealistic. The FCA must therefore calibrate reform carefully to avoid overwhelming a sector that is already stretched.

The regulator’s intent to enable a market that is both innovative and inclusive should be applauded. However, reform cannot happen in isolation from the wider housing context.

Expanding lending criteria, improving data use and supporting later life borrowers will all help, but without more homes being built, the underlying affordability problem remains.

A truly future-ready mortgage market must be matched with a future-ready housing strategy. Time will tell whether Labour’s housing ambitions will reach their lofty goals.

The FCA’s vision sets the direction of travel, but its success will depend on collaboration and a clear-eyed view of the practical challenges ahead. The market is ready to evolve. The key will be ensuring that evolution happens in a way that is inclusive, stable and genuinely sustainable for the long term.