FCA Mortgage Rule Review 2026: What UK Advisers Need to Know

The FCA published CP26/18 on 9 June 2026 — the first formal consultation to come out of its ongoing mortgage rule review. The paper sits at the practical end of what has been a lengthy policy development process: a discussion paper in 2025, feedback gathered from across the market, a roadmap published earlier this year, and now a set of concrete proposals that affect six areas of mortgage lending that advisers deal with regularly.

For mortgage intermediaries, this is worth reading carefully. The six areas covered — interest-only, retirement interest-only, variable income, foreign currency loans, credit impaired borrowers, and bridging — represent a significant cross-section of cases that do not sit comfortably in standard lending templates. The deadline for responding is 28 July 2026, and advisers who work regularly in any of these areas have direct experience that the FCA needs to hear.

How the mortgage rule review got here

The framework the FCA is now consulting on changing was built in the aftermath of the 2008 financial crisis. The Mortgage Market Review, implemented in 2014, tightened affordability assessment requirements significantly. Lending became more disciplined, the market became more resilient, and default rates fell.

The downside, which the FCA has acknowledged, is that those changes also made it harder for creditworthy borrowers who fall outside the standard employed, capital-repayment, regular-income profile to access suitable mortgages. The problem has become more visible as employment patterns have changed: the proportion of the UK workforce earning through commission, freelance arrangements, irregular hours, or self-employment has grown, and the mortgage market has not kept pace.

The FCA published a discussion paper — DP25/2 — in 2025 to open this up for examination. The feedback was substantive. Lenders, intermediary trade bodies, and consumer groups all pointed to the same pattern: good borrowers being declined or pushed into unsuitable products because the rules were designed around an employment and income profile that is no longer representative of how many people work and earn.

FS25/6, the feedback statement published earlier this year, summarised those responses and set out a roadmap. CP26/18 is the first concrete output. It covers the areas where the FCA has concluded that targeted rule changes would improve access for creditworthy borrowers without increasing systemic lending risk.

The six areas CP26/18 covers

Interest-only and part-and-part mortgages

The MCOB rules require lenders to be satisfied that borrowers have a credible repayment strategy for interest-only mortgages. In practice, that requirement has been applied inconsistently. Some lenders are comfortable with a sale of the mortgaged property as a repayment vehicle; others require a pension or investment portfolio; others apply minimum thresholds that many clients cannot reach. The variability means that the same client with the same repayment strategy can be accepted by one lender and declined by another.

The FCA is not proposing to remove the repayment strategy requirement. What CP26/18 consults on is whether guidance can be updated to create more consistency in how firms approach this, particularly for clients whose strategy is sound but does not fit a conventional template.

For advisers, the current inconsistency creates real problems: it is difficult to give a client certainty about which lenders will accept their strategy without effectively going through a soft placing exercise. Clearer guidance that establishes a more coherent baseline should give intermediaries firmer footing when recommending interest-only products.

Part-and-part mortgages — where the borrower services interest on a portion and makes capital repayments on the rest — sit in the same space and are covered by the same proposals. For clients who cannot service a full capital repayment but have a credible partial repayment vehicle, part-and-part has always made logical sense. The barriers have largely been practical rather than conceptual, and the consultation gives an opportunity to address them.

Retirement interest-only (RIO) mortgages

RIO mortgages were designed to sit in the gap between standard repayment products and lifetime mortgages for borrowers in or approaching retirement. The borrower services the interest each month; the capital is repaid when they die or move into long-term care. The product made sense when it was introduced in 2018, but uptake has been significantly below expectations.

The reasons are partly market-side (some lenders never built the capability to originate RIOs) and partly regulatory. The affordability assessment framework for RIOs has proved difficult to apply to borrowers whose income is primarily from pensions or other fixed sources, and some lenders have found the rules too uncertain to price and underwrite consistently.

CP26/18 proposes adjustments to the RIO affordability framework to make the products more practical to originate and more accessible to borrowers. The proposals sit alongside a commitment in the roadmap to consult further on later life lending more broadly — the RIO changes are part of that larger piece, not a standalone fix.

For advisers working with clients aged 55 and over, the significance extends beyond the immediate proposals. The FCA is signalling clearly that it sees better outcomes in later life lending as a priority, and that the regulatory environment for this segment is going to evolve. Advisers who understand the current market — including where RIO, equity release, and standard repayment products differ in their practical effect — will be better placed to advise clients as the options become clearer.

Variable and irregular income

This is likely to be the most immediately relevant area of the consultation for the majority of mortgage intermediaries. The ONS Labour Force Survey has consistently found that around 15% of the UK workforce is self-employed, and commission or bonus payments represent a significant component of income for many employed borrowers. Current MCOB affordability rules do not prescribe exactly how lenders should treat variable income, and the result is wide variation: different averaging periods, different discount rates for bonuses, different treatment of rising income versus falling income.

The FCA's feedback from DP25/2 confirmed that this inconsistency is a genuine barrier. A client with two years of rising commission income, clearly trending upward, might be assessed by one lender on a conservative average of the two years and by another on the lower year only. A freelancer with a strong three-year track record might find that one lender recognises their day rate and another will only use the self-employed accounts.

CP26/18 proposes guidance to help firms approach variable income more consistently. The key language in the consultation is that the proposals do not remove the income verification or affordability assessment obligations — they aim to ensure those obligations are applied proportionately and with reasonable consistency across the market.

For advisers, greater consistency in how lenders assess variable income would have tangible operational benefits. At the moment, placing a client with irregular earnings involves a significant amount of pre-application dialogue with lenders to understand their policies. If the guidance narrows the range of acceptable approaches, advisers will be able to identify suitable lenders with more certainty and reduce the risk of a hard search on a case that is unlikely to proceed.

Foreign currency loans

The foreign currency proposals address a specialist area: mortgages where the borrower's principal income is in a currency other than sterling. The current rules include protections around currency risk disclosure, hedging requirements, and the right to convert the loan to sterling. CP26/18 consults on whether some of those protections can be rationalised without weakening the underlying safeguards for borrowers.

For most intermediaries, foreign currency cases represent a small proportion of their pipeline. But for advisers with clients who earn in euros, dollars, or other currencies — expats returning to the UK, dual-income households where one partner earns abroad, international professionals — the current framework can create unnecessary friction. The consultation is worth monitoring even if it does not apply to most of your current client base.

Credit impaired borrowers

The credit impaired proposals have the potential to be significant for advisers who work with clients whose mortgage access has been affected by historic financial difficulty. Current MCOB rules define credit impaired borrowers and apply a set of additional requirements when firms lend to them. Some lenders apply those requirements strictly; others interpret the definitions conservatively; a few have effectively withdrawn from this segment of the market.

The FCA's stated aim in CP26/18 is that creditworthy borrowers — people whose past credit difficulties are genuinely past, and whose current circumstances support an affordable mortgage — should be able to access suitable products. The consultation asks whether the current definition of credit impaired is correctly calibrated, and whether the associated requirements are proportionate to the actual risk.

For advisers in the adverse credit space, this connects directly to case work. The gap between what the rules say and how lenders apply them in practice is often significant. Lenders who adopt conservative positions beyond what the rules require can make an already restricted market even narrower for clients who are otherwise well-placed. If clearer rules produce more consistent behaviour, the practical effect for advisers will be more predictable case outcomes and fewer surprises in underwriting.

There is also a Consumer Duty angle. The FCA has been clear across its supervisory work that firms should ensure they are not effectively excluding creditworthy borrowers from the market on grounds that cannot be properly justified. The credit impaired proposals in CP26/18 are, in part, a response to evidence that some approaches are not passing that test.

Bridging loans

The regulated bridging market has grown considerably in recent years. Regulated bridging — where a first charge on the borrower's main residence is involved — sits under MCOB. The consultation asks whether some MCOB requirements, designed primarily with standard residential mortgages in mind, are proportionate when applied to short-term bridging finance where the borrower's exit strategy is typically clear and the loan term is measured in months.

For intermediaries who place regulated bridging cases, this matters practically. The existing framework can create friction in cases that are clearly low-risk in nature — a client bridging to fund a purchase before their existing property completes, for instance. The consultation gives firms the opportunity to point to specific examples where the rules create unnecessary delays or costs without corresponding consumer benefit.

What is not changing

The FCA has been explicit about what CP26/18 does not propose. The core responsible lending obligations under MCOB — the duty to assess affordability, verify income, ensure the mortgage is suitable — are not being removed or weakened. The proposals are targeted changes to areas where current rules are creating barriers for creditworthy borrowers, not a wholesale relaxation of the lending framework.

For advisers, this is an important point to be clear on when speaking to clients. Borrowers who have heard about the rule review may ask whether they now have a better chance of getting a mortgage they were previously declined for. The honest answer is that the proposals are promising, but that nothing has changed yet, final rules are not expected until the second half of 2026, and the responsible lending assessment will still be thorough.

How to respond

The consultation is open until 28 July 2026. The FCA is asking for responses from lenders, administrators, and mortgage intermediaries — all three are named in the "who this is for" section of CP26/18. Responses can be submitted via the industry response form on the FCA's consultation page, or by emailing cp26-18@fca.org.uk.

Intermediaries are in a distinctive position to contribute to this consultation. Lenders see their own book; the FCA sees aggregate data; advisers see the market across many lenders and can identify patterns in how rules are applied inconsistently. If you have cases where current rules have produced outcomes that seem disproportionate — a solid client declined because of variable income, a retiree unable to access an appropriate product, a bridging case delayed by requirements that did not fit — those examples are exactly what a consultation response can usefully include.

Trade bodies including the AMI and IMLA are likely to submit coordinated industry responses. Reading those responses, when published, is useful context. They do not preclude individual firm responses, and firms with specific direct experience of the affected areas can add value that aggregate responses sometimes miss.

The broader roadmap

CP26/18 is the first of several consultations planned under the mortgage rule review. The FCA has confirmed that further consultations will address three additional themes: enhancing later life lending, enabling innovation in mortgage delivery, and protecting consumers in vulnerable circumstances.

The later life lending chapter is likely to be the most significant for the broadest range of advisers, given the ageing borrower population and the growing complexity of advice in the 55-plus market. The FCA's commitment to consult separately on this — beyond the RIO proposals already in CP26/18 — suggests the scope is wider than just product rules.

For advisers, the practical advice is straightforward: read the CP26/18 summary (the full paper runs to several chapters; the executive summary and the six proposal sections are the priority for most intermediaries), assess whether any of the six areas affect your client base regularly, and decide whether to respond directly or through your trade body. Final rules are not changing anything today, but knowing what is coming means better-informed conversations with clients whose cases currently sit in these grey areas.

The full consultation paper and response forms are available at fca.org.uk/firms/mortgage-rule-review.

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This post is based on the FCA's CP26/18 consultation paper, published 9 June 2026. It is intended as an overview for mortgage intermediaries, not legal or regulatory advice. Advisers should read the full consultation paper and seek compliance guidance as appropriate.