FCA Mortgage Rule Changes 2026: What's Actually Being Proposed

What is CP26/18?

CP26/18 — “Mortgage Rule Review: Supporting first-time buyers and underserved consumers” — is the first consultation in the FCA's wider Mortgage Rule Review. David Geale, the FCA's executive director for payments and digital finance, put the intent plainly: “We're living longer and how many people work has changed. Our mortgage rules need to keep pace so those who can afford to repay can borrow.”

Three more themes — later-life lending, innovation, and protecting consumers in vulnerable circumstances — are being developed separately, so this paper is a first instalment, not the whole review.

Interest-only and part-and-part: the biggest practical change

Since 2014, lenders have needed evidence of a “credible repayment strategy” before offering interest-only lending. CP26/18 proposes that where the interest-only element is less than 25% of the property valuation, that evidence requirement is removed entirely. Between 25% and 50%, the strictest evidential test (that selling your home would leave enough equity to buy a cheaper one) would go; above 50% it stays.

The FCA also proposes accepting follow-on products — like retirement interest-only or lifetime mortgages — and converting to repayment later as valid strategies. For buyers squeezed on monthly affordability, a part-and-part mortgage with a small interest-only slice could become genuinely easier to get. The FCA is explicit, though, that it does not aim to make interest-only “universally accessible”.

Past credit problems: ending the blanket “computer says no”

The Handbook defines a “credit-impaired customer” as someone with 3+ months of arrears in the last 2 years, a CCJ over £500 in the last 3 years, or a bankruptcy or IVA in the last 3 years. That definition was written for debt-consolidation rules and regulatory reporting — but the FCA has found firms using it as an automatic decline trigger. The consultation cites the cost of that: credit-impaired borrowers paid a median rate of 6.44% in 2025 against 4.33% for everyone else.

CP26/18 proposes to state explicitly that the definition applies only to its original narrow purposes, and that firms must not treat it as a factual indicator of unaffordability. If adopted, the practical effect should be fewer automatic declines for historic blemishes — and more cases assessed on the evidence. If you have past credit issues, our bad-credit timeline tool shows how lender availability already improves as events age, and our decline decoderexplains what to do if you've been turned down.

Self-employed and variable income: payments that fit your income

Only around 6% of 2025 mortgage sales involved a self-employed borrower, against roughly 13% of the workforce. CP26/18's fix is modest but useful: relabelling “monthly payments” in the rules as “regular contractual payments”, confirming lenders can agree quarterly or other schedules that match irregular income — with a duty to explain the cost implications — plus expanded guidance on evidencing variable income.

It's a clarification of flexibility lenders already have rather than a new affordability method, so how much you can borrow still varies enormously by lender today. Our self-employed mortgage calculator shows how the same accounts produce different maximums under different assessment methods.

Older borrowers: a simpler joint RIO test

For joint retirement interest-only (RIO) mortgages, guidance currently tells lenders to check the surviving partner could afford the payments alone if the other dies. CP26/18 proposes removing that obligation, so joint RIO affordability is assessed like any other joint mortgage — the FCA notes RIO arrears are under 1%. This is a narrow fix; the broader later-life lending review is separate and ongoing. See our guide to mortgages later in life.

Foreign currency income and loans

EU-derived rules currently require conversion rights and warnings whenever currency movements shift a loan or repayments by more than 20%. CP26/18 proposes dropping the conversion right for new non-sterling loans and removing the rigid 20% trigger — and where the loan is in sterling but income isn't (a UK contractor paid in dollars, or a Northern Ireland resident working across the border), both requirements could go entirely. If you're affected, see our foreign currency income guide and foreign nationals guide.

Bridging loans: 12 months becomes 24

Regulated bridging loans are currently defined by a 12-month maximum term — and the FCA's data shows nearly a fifth of specialist bridging borrowers already need longer. CP26/18 proposes extending the definition to 24 months (original term plus extensions combined) and removing the full re-assessment requirement when extending a bridge where interest isn't rolled up.

What CP26/18 does not change

Three things worth being clear about. First, nothing is in force yet — these are proposals, open for comment until 28 July 2026, with final rules expected in the second half of 2026 and lender adoption after that. Second, affordability checks are not being loosened — responsible-lending and Consumer Duty obligations stay exactly as they are; the stress-test flexibility lenders gained in 2025 was a separate, earlier measure. Third, every proposal is permissive: lenders can adopt the new flexibilities or keep their current policies, which means — as with everything in this market — the gap between the most and least flexible lender will likely get wider, not narrower.

That last point is the practical takeaway. When rules become more permissive, lender criteria diverge — and checking across the whole market matters more, not less.

Frequently asked questions

Last updated: July 2026. This page describes regulatory proposals under consultation and will be updated when the FCA publishes final rules.