FCA CP26/18: Essential Mortgage Rule Review Changes for 2026

FCA CP26/18 is the latest consultation in the FCA’s Mortgage Rule Review, and it sets out a more flexible approach to mortgage lending. Published as part of the regulator’s responsible lending work, the paper focuses on improving access to mortgages for first-time buyers and other underserved groups, while keeping strong protections in place for consumers.

The proposals are largely permissive. Rather than adding significant new requirements, FCA CP26/18 simplifies or clarifies existing rules where they may be creating unnecessary barriers. The FCA’s broad objectives are to widen access to homeownership, support later life lending, enable product innovation, and protect customers in vulnerable circumstances.

What FCA CP26/18 proposes

Each measure targets a specific point where current rules can hold back lending that would otherwise be responsible. Rather than rewriting the rulebook, the FCA is adjusting individual requirements so that firms can apply more judgement, while leaning on the Consumer Duty and the existing responsible lending framework to keep standards high. The thread running through the proposals is proportionality, matching the level of assessment to the actual risk a borrower presents rather than applying rigid criteria that can exclude creditworthy customers. The detail runs across several areas, from interest-only and later life lending to how income and past credit are treated.

A central theme is interest-only lending. The FCA wants to give firms greater flexibility in how these products are used, including thresholds where a formal repayment strategy may not be required, and a wider range of acceptable repayment strategies, such as converting to repayment over time or moving to a follow-on product. For retirement interest-only (RIO) mortgages, the paper removes specific affordability guidance for joint borrowers and gives firms more discretion to assess affordability in line with their risk appetite and Consumer Duty obligations.

The consultation also looks to support borrowers with non-standard income, such as the self-employed or those with variable earnings. Affordability assessments would be able to draw on a wider range of income evidence, and mortgage payments would not have to be structured on a monthly basis, which opens the door to more flexible product design.

On historic credit problems, the FCA is clear that a “credit-impaired” label should not be used as a blanket indicator of unaffordability, and it encourages a more proportionate, case-by-case assessment.

Further proposals simplify the rules for foreign currency lending, moving towards a more outcomes-focused approach, and extend the maximum term for regulated bridging loans from 12 to 24 months to better reflect transactions such as property chains and renovations.

What it means for brokers and lenders

For mortgage brokers and advisers, FCA CP26/18 could widen the range of options available to underserved clients, but it also calls for a clear understanding of the new flexibilities and careful, well-documented advice. For lenders, there is scope to lend more flexibly to creditworthy customers and to revisit product design, provided firms continue to operate within the existing responsible lending framework.

In both cases, the Consumer Duty remains the backstop. The FCA is rebalancing risk in the mortgage market, not loosening its expectations on good customer outcomes. Clear records of how affordability and repayment strategies are assessed are likely to matter as much as the added flexibility itself.

Next steps

These remain proposals at this stage, so current rules continue to apply until any final rules take effect. The consultation is open until 28 July 2026, with a policy statement expected later in the year. Firms should consider how the proposals affect their lending policies, affordability assessments and advice processes, and whether to respond while there is still time to shape the outcome.

You can read the full paper on the FCA website. If you would like support understanding what FCA CP26/18 means for your permissions and processes, our team can help.