FCA Mortgage Rule Review CP26/18: What It Means for First-Time Buyers, Self-Employed and Older Borrowers

Why the FCA Is Reviewing Mortgage Rules Now

The current mortgage affordability framework dates substantially from 2014, when the Mortgage Market Review introduced stricter lending standards following the 2008 financial crisis. Those rules succeeded in creating a more resilient market: the FCA's own data shows that fewer than 1% of mortgages taken out since 2014 are in arrears, even through the period of rising interest rates from 2022 to 2024.

But the FCA acknowledges that this more cautious approach has also restricted access for creditworthy borrowers who do not fit standard templates. The way people work, earn and live has changed significantly since 2014. Self-employment is more prevalent. People are living and working longer. Multiple income sources are more common. Variable pay - bonuses, freelance income, rental income - makes up a larger share of household finances.

CP26/18 is the FCA's attempt to update the mortgage framework to reflect these realities, while maintaining the core affordability principles that have kept arrears low.

What Changes for Self-Employed Borrowers

Self-employed borrowers have historically faced significant barriers in the mortgage market. Lenders have tended to apply conservative interpretations of affordability requirements, often requiring two or three years of accounts and averaging income in ways that penalise those whose income is growing.

CP26/18 proposes to reduce barriers for lenders to offer flexible repayment structures for people with variable income. Specifically:

• Lenders would be encouraged to assess affordability based on a person's current financial situation rather than a rigid historical average
• More flexibility for income assessed in foreign currency for those paid in foreign currency
• Lenders would not be required to automatically exclude applicants because of income variability

What Changes for Older Borrowers

Older borrowers - particularly those seeking retirement interest-only (RIO) mortgages - have faced a complex affordability landscape. RIO mortgages allow borrowers to pay only the interest each month, with the capital repaid when the property is sold, typically at death or entry into care.

CP26/18 proposes to update affordability guidance for RIO mortgages to make it easier for older homeowners to access wealth built up in their property. The FCA notes that lenders are living longer and the profile of mortgage borrowers in their 50s, 60s and beyond has changed significantly since the original frameworks were developed.

What Changes for Borrowers With Past Credit Issues

One of the most significant proposals in CP26/18 is the encouragement for lenders to assess affordability based on a person's full and current situation, rather than automatically excluding people because of minor or historic credit issues.

Currently, many lenders apply blanket exclusions for applicants who have had missed payments, defaults or county court judgments (CCJs) in the past, even where those issues were resolved years ago and the applicant's current financial position is strong. CP26/18 proposes that lenders should be free to take a more nuanced view.

The FCA is clear this is about lender flexibility, not about removing responsible lending requirements. Lenders must still make robust affordability assessments. The Consumer Duty also continues to apply, requiring lenders to act in the best interests of their customers.

What Stays the Same

The core affordability requirements introduced after the Mortgage Market Review remain in force. Lenders must still:

• Verify income and expenditure
• Conduct stress tests to ensure borrowers can afford repayments if interest rates rise
• Support borrowers who get into financial difficulty
• Act in accordance with the Consumer Duty

CP26/18 is about widening lender flexibility within responsible lending principles, not removing the principle of responsible lending itself.

How to Respond to CP26/18

The FCA is explicitly seeking feedback from consumers as well as lenders and other industry participants. An online tool is available on the FCA website for consumers to share their experiences of the mortgage market. The consultation closes on 28 July 2026.

What is CP26/18?

CP26/18 is an FCA consultation paper titled Mortgage Rule Review: Supporting First-Time Buyers and Underserved Consumers. It was published in June 2026 and proposes changes to mortgage affordability rules to help self-employed borrowers, older homeowners, first-time buyers and those with past credit issues access the market. The consultation closes on 28 July 2026.

Will these changes make it easier to get a mortgage?

If implemented, the proposals would give lenders more flexibility to approve applications that might currently be declined due to rigid affordability criteria. However, lenders will still be required to conduct robust affordability assessments. Changes will not take effect until the FCA publishes final rules following the consultation.

Does CP26/18 affect existing mortgages?

No. The proposals relate to new mortgage applications. Existing mortgage terms are governed by the contract you signed with your lender.

I am self-employed and was declined a mortgage. Does this help me now?

Not immediately. The proposals are at consultation stage and not yet rules. However, some lenders already apply flexibility within current rules. An FCA-authorised mortgage broker with access to the whole market can search lenders whose criteria are more accommodating of self-employed applicants under current rules.

What is a retirement interest-only mortgage?

A retirement interest-only (RIO) mortgage allows older homeowners to borrow against their property and pay only the interest each month, with the capital repaid when the property is sold - typically at death or entry into long-term care. CP26/18 proposes to update affordability guidance to make RIO mortgages more accessible.