In a speech, Nikhil Rathi, the FCA’s CEO, said: “We want to enable the mortgage market of the future – one that adapts to fast-changing technology, employment and demographic shifts, and consumer preference, need and expectations, particularly in their later years.
“A market that supports the financial wellbeing of millions throughout their lives, with more people accessing sustainable homeownership. Our response must be bold. Focused on outcomes, not orthodoxy.”
He added that shaping such a market would be “no small feat” and requires all stakeholders “to think differently”.
“Ensuring we have a market that provides consumers fair value, high-quality advice and support is crucial. But true reform must be system-wide,” Rathi added.
He said some “structural challenges remain”, pointing to borrowers who cannot raise a large deposit, have familial support, are self-employed or have irregular income, are recovering from a negative life event, have overseas assets and income, or have dealt with minor credit impairments as “likely to find it more difficult or expensive to get a mortgage”.
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Rathi said some of these groups are “growing” and “there is nothing unusual about them”.
“Without change, more are likely to rent for longer – with the proportion of people renting in retirement potentially more than doubling by 2041, perhaps requiring almost £400,000 more in savings than for those who own a home. The market and regulation needs to serve them better,” he said.
Interest-only and pensions for home buying should be considered
Rathi said interest-only “should not be the mass-market product that it used to be”, adding that sales to first-time buyers are “currently close to zero”.
However, with “strong product design, quality advice, effective communication, and support through the life of the loan”, part interest-only could potentially support earlier homeownership.
Another option could be using pension savings to enable homeownership or ‘a Citizen’s Advance’ on the start pension.
Rathi warned that each could introduce new risks, and debate would need to take place to “meet the challenges we face”.
Later life lending should not be a ‘last resort’
Later life lending will be a key area of the market going forward as people are carrying mortgage debt for longer, Rathi noted.
He added that some may never own their homes outright but will have the “benefits and security of homeownership all the same”.
“The mortgage market should be on hand to unlock wealth at the right time – when it’s needed, offering fair value, as part of a wider financial plan. Not as a last resort,” Rathi noted.
Rathi said “legacy issues” may shape perceptions around equity release, and advice and promotion standards “still needed to improve”.
However, lifetime products “continue to evolve” and “more flexible retirement and lifetime mortgages are already supporting some consumers”.
Rathi warned that advice is “often siloed”, which can leave consumers “unaware of all their options”, and feedback on its Discussion Paper shows a “clear motivation to take a more effective streamlined approach”.
Questions remain around whether all advisers should be able to advise on lifetime products or a market-wide referral scheme or other forms of innovation.
“Further thought and engagement is needed, but the aim is clear: an industry supporting consumers to fully understand their options for funding later life, receiving timely and appropriate support and advice, with products that deliver positive outcomes, offering fair value,” he added.
Stress testing and LTI changes boosting the market and Mortgage Charter to be retired
Rathi said that following updated guidance earlier this year around stress testing, around 85% of the lender market had updated their approach and are able to offer around £30,000 more.
He noted that the volumes of mortgage approvals have “remained robust”, and figures estimated that first-time buyer transactions could rise by up to 24% over the next five years.
Rathi said the Prudential Regulatory Authority (PRA) and FCA’s changes to recommendations for high-loan-to-income (LTI) lending have supported up to 36,000 more first-time buyers per year.
“Seeing the full impact in completed sales will take time, but lenders report good pipelines, with many adjusting criteria to support lower-income households,” he noted.
Figures also show that 350,000 homes are progressing through the sales pipeline – the largest in four years, Rathi said.
“Some warn this will lead to excess credit, inflating house prices. But neither of these changes do that. Instead, they enable lenders to undertake more realistic, robust affordability assessments.
“While house prices are up modestly in nominal terms, there are regional variations and we aren’t seeing runaway real-terms price increases – with several forecasts being revised down,” he noted.
Rathi added that the Mortgage Charter can “now be safely retired” and that this would not impede consumer protection but “would remove overlapping standards and reporting requirements”.
He noted that the FCA is also supportive of the government’s consultation on the home buying and selling process and ambition to streamline anti-money laundering (AML) checks.
