Executive summary

The FCA’s Discussion Paper 25/2 sets out proposals to review and potentially reform the mortgage  regulatory framework, with a primary objective of supporting sustainable growth in the mortgage market. Alongside this, it explores how regulation can enable more diverse lending, particularly for  underserved customer groups, while maintaining good outcomes and consumer protection.

We welcome the FCA’s proactive approach and agree this is a timely and necessary review, particularly as the market navigates shifting economic conditions, changing customer demographics, and increasing demand for tailored lending solutions. It is now a requirement since the Financial Services and Markets Act 2023 was updated for regulators to review its rules and this paper is a welcome response.

We also acknowledge that many of the challenges posed in the discussion paper cannot be solved by  regulatory intervention, they rely on changing lender risk appetite, or other engaged parties in the  housing system such as government, the Prudential Regulation Authority, and those in the legal system.

Key Themes and Insights:

•  Growth and Innovation: We strongly support the FCA’s goal of ensuring the regulatory framework is  fit for purpose and supports innovation, competition, and market growth. This includes revisiting legacy rules that may inhibit innovation, streamlining customer journeys, and enabling greater use of technology such as AI, open data, and automation.

•  Sales and Advice Frameworks: We believe that the current advice/execution- only split could benefit from greater flexibility. Options that allow more tailored support for digitally confident consumers and for scenarios where full advice may be disproportionate or unwanted are welcome.

•  Disclosure and Documentation: While we support the principle of clear consumer disclosure, there is limited appetite for major changes to existing documents like the ESIS. Instead, improving how and when information is delivered, particularly for non-standard scenarios such as debt consolidation or interest-only lending is preferable. We believe that changes that support the growth agenda and enable more consumers to access home ownership in a sustainable way should be prioritised.

•  Access and Inclusion: Improving access to home ownership remains an important theme. There is  potential to do more for customer groups with irregular income, limited credit history, or low deposits, but this must be balanced with responsible lending. Rebalancing risk appetite can support inclusion, but expectations under Consumer Duty must be carefully managed. Also, we recommend a review of  property taxation to support those who wish to ‘right size’ in favour of supporting older borrowers. For shared ownership, the main barrier is not always affordability but high service charges and repair costs,  particularly for flats, with notable differences in how the London and non-London markets operate and are perceived.

•  Digitisation of the Home Buying and Selling Journey: We support the FCA’s interest in improving the house buying and selling process but note that large-scale digitisation would require cross-sector  collaboration and possibly government leadership. Areas such as standardisation of legal processes, use of digital ID, and better regulation of conveyancing could all improve borrower outcomes and support market efficiency.

•  Managing Risk and Tolerable Harm: The concept of "tolerable harm" was broadly supported, with calls for clearer definition and a more practical framework for measuring and monitoring this across the market. There is some tension between enabling access and managing risk, particularly under Consumer Duty, and supported the idea of market-wide indicators.

•  Unsustainable Mortgages and Forbearance: There are operational and systemic barriers to managing unsustainable mortgages, including outdated systems, legal challenges, and limited external support such as social housing or SMI. Greater regulatory flexibility and judicial consistency were seen as essential to reducing long-term harm.

•  Rebalancing Risk Appetite: We agree with the FCA’s assessment of the key trade-offs involved and support efforts to enable a more balanced approach to risk. We welcome the FCA taking a broader view of comparing the customer outcome of home ownership vs remaining in rental property, often at greater cost, and missing the opportunity to create property wealth. While this may result in increases in arrears and possessions, these have been very low through the COVID period and cost of living crisis. The risk now feels inappropriately calibrated vs the function of enabling greater access to home ownership. We also acknowledge the risk of layering and compounding risk, and that monitoring consumer outcomes will be important to prevent foreseeable harm.

•  Regulatory Priorities: The FCA is encouraged to prioritise changes that could deliver the greatest  benefit to market growth and operational efficiency. These included:

• Reviewing affordability rules to support greater access to home ownership especially for first-time buyers
• Later life lending and how we support more consumers with retirement planning
• Reforming interest-only rules to allow for clearer stepping stones to ownership
• Reviewing barriers for products like shared ownership

Overall, we support the FCA’s ambition to ensure that mortgage regulation enables a dynamic, growing and inclusive market. We urge a balanced and phased approach, allowing the recent changes to fully bed in before committing to any future changes. It’s essential to prioritise changes that deliver the greatest market impact while protecting customer outcomes and ensuring alignment with broader policy objectives. 

We would welcome the publication of a Consultation Paper, providing a permissive framework and an opportunity for stakeholders to offer feedback. We also consider that collective engagement with the various trade bodies in the mortgage market can help shape how future regulation develops.

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