On 22 July 2025, the Financial Conduct Authority (FCA) published Policy Statement PS25/11, aimed at simplifying responsible lending advice rules in line with its commitment to helping people navigate their financial lives and supporting the competitiveness of financial services as part of its 5-year strategy.
The first set of proposals under the Mortgage Rule Review (MRR), set out in CP25/11 are intended to simplify responsible lending and advice rules for regulated mortgages, to make it easier, faster and cheaper for consumers to:
- Speak to a mortgage provider about their mortgage needs
- Reduce their mortgage term
- Remortgage with a new lender
These changes enable consumers easier access to remortgages and term reductions, quicker lender engagement and potentially lower costs, whilst enabling the lenders greater discretion and flexibility.
As these changes are optional, and designed for lenders to implement gradually, we have stepped through each of the finalised changes to rules and guidance, outlining the key considerations for lenders.
What are the key changes?
Mortgage advice and interactive dialogue
The FCA are removing the interaction trigger at MCOB 4.8A7R (3) and associated rules and guidance, meaning interactions between a firm and their customers will not immediately trigger advice. The intention is to allow easier interactions between firms and their customers, while helping to ensure advice is provided when needed. The policy statement outlines that it will also make it easier for customers to get the right information and products.
Whilst the benefits are clear, firms will need procedures in place to mitigate the risk that a consumer may unintentionally go down the route of an execution-only mortgage, without being equipped with the requisite knowledge to make an informed decision. In this instance, vulnerable customers would be particularly susceptible to harm. The FCA maintains the requirement for ‘positive election’ in this scenario, with borrowers explicitly confirming clarity and consumer awareness. As a result firms must have robust processes in place to ensure a customer is fully informed and aware of the consequences of losing the protections of the rules on assessing suitability, should they wish to proceed with an execution-only sale.
The FCA are also introducing a rule that requires firms to consider what procedures are appropriate to identify execution-only customers for whom advice, or other customer support, may be necessary to avoid causing foreseeable harm, as part of meeting their obligations under the Duty. This places reliance on firms to ensure that they have sufficient procedures in place to proactively identify customers who may require advice. In the event a firm does not have robust processes in place, there is a clear risk of harm, should a borrower acquire an unsuitable, unaffordable mortgage.
Affordability assessments when reducing a mortgage term
The FCA are removing the requirement for a full affordability assessment when reducing the term of a mortgage. Though the FCA still expects firms to consider affordability in line with their responsible lending policy and the Consumer Duty/PRIN 2A when they choose to use these changes.
Removal of a mandatory requirement to undertake full affordability assessments does invariably create a risk of insufficient affordability assessments being undertaken and revised terms being unaffordable, leading to potential financial difficulty. Though the FCA still expects firms to avoid causing foreseeable harm and to monitor and regularly review the outcomes customers are experiencing.
Amending affordability assessments when remortgaging
The FCA are amending the modified affordability assessment (MAA) to include new mortgage contracts with new lenders where it is more affordable than either a customer’s current mortgage, or a new mortgage product that is available to that customer from their current lender.
This presents wider opportunity for consumers, particularly mortgage prisoners whom lenders now have freedom to offer cheaper remortages to whilst being able to compete more freely to serve those borrowers.
Retiring guidance
The FCA are retiring two pieces of non-Handbook guidance (FG13/7) and FG24/2) and are introducing a rule and guidance into the Handbook to clarify that firms must deal fairly with customers whose mortgage terms have expired, reinforcing that firms must not take repossession action unless all other reasonable attempts to resolve the position have failed.
The removal of prescribed guidance aimed at handling interest-only mortgages and rising cost of living impacts may leave firms without structured processes in increasingly complex customer circumstances. Though it is recognised that the requirements are supported by the Consumer Duty.
Next steps for firms
The proposed mortgage rule changes are designed to reduce cost, complexity and barriers for consumers, whilst providing lenders with more regulatory headroom to innovate and expand, presenting commercial opportunity to stimulate growth.
Though with greater opportunity comes greater responsibility, and firms should tread carefully with respect to implementing changes to current procedures in the quest for simplification.
- In respect of mortgage advice and interactive dialogue, firms must have robust processes in place to ensure a customer is fully informed and aware of the consequences of losing the protections of the rules on assessing suitability along with sufficient procedures in place to proactively identify customers who may require advice.
- Given the FCA still expects firms to consider affordability in line with their responsible lending policy and the Consumer Duty/PRIN 2A, firms will need to undertake gap analysis activity across their Responsible Lending Policy and current processes with respect to affordability assessments, to ensure that any changes avoid causing foreseeable harm and that they still monitor and regularly review the outcomes customers are experiencing.
The proposed mortgage rule changes, if applied robustly and in line with the Consumer Duty, enable the market to become more accessible, efficient and tailored to evolving consumer and lender needs.
If you would like to discuss any aspect of the FCA’s Mortgage Rule Review, or any other conduct-related matter, please contact us at: hello@square4.com
