The Financial Conduct Authority (FCA) is considering a return of interest-only mortgages as part of a broader review of the UK mortgage market, aimed at making homeownership more accessible to first-time buyers and those with variable or non-traditional income streams.
Interest-only mortgages — once a popular product among buy-to-let investors — were scaled back following the last Mortgage Market Review, which introduced stricter stress testing and affordability rules. Those measures are now viewed by many as overly restrictive, particularly in today’s high-cost housing landscape.
In a new discussion paper released this week, the FCA has invited public and industry feedback on whether its existing rules could be adjusted to “better support more interest‑only mortgages.” The regulator believes such products could play a role in supporting “sustainable homeownership” for borrowers who may struggle to afford full capital repayment plans.
“We’re starting a public conversation on the future of the mortgage market,” said David Geale, executive director for payments and digital finance at the FCA. “We want to see what we can do to help consumers navigate their financial lives and to support growth. It’s about striking the right balance between opportunity and risk.”
The FCA says it is particularly focused on improving mortgage access for the self-employed, those with variable or unpredictable incomes, and individuals in vulnerable circumstances — groups often overlooked by lenders due to rigid rules on affordability.
Among the additional proposals being floated are regulatory support for long-term fixed-rate mortgages, a rent-based affordability assessment, and increased use of “part and part” mortgages, where borrowers repay a portion of the capital alongside interest.
Rightmove’s mortgage expert, Matt Smith, welcomed the discussion: “It’s promising that the regulator is exploring targeted changes that could help people in different circumstances borrow what they need to buy a home. The challenge for first-time buyers is especially clear when you consider that advertised rents have risen by 41% in the last five years, making it harder to save for a deposit.”
Smith also emphasised the importance of regional context: “There’s a big difference between affordability in the South of England compared to Scotland, Wales, or the North. Any changes must account for the reality that house price-to-income ratios are far more stretched in the South.”
Interest-only mortgages allow borrowers to pay only the interest on the loan for a set period, usually with the expectation they will repay the capital at a later date. While they offer lower monthly repayments, they have been criticised in the past for encouraging risky lending practices, especially when borrowers lacked a clear plan for repaying the principal.
The FCA’s discussion paper marks the early stages of a potential policy overhaul. If adopted, these reforms could represent the most significant shift in mortgage regulation since the 2014 Mortgage Market Review. The consultation remains open, with feedback from lenders, brokers, and consumers invited over the coming months.
