The FCA has finalised the changes that were proposed in May this year to make it easier for customers to engage with mortgage providers and make reductions to mortgage terms and remortgaging easier. This includes removing the customer interaction trigger for advice and introducing flexibility for affordability assessments when reducing a mortgage term or remortgaging. Some non-Handbook guidance has also been retired. As the amended rules are permissive in nature, there is no implementation period so the changes came into effect immediately upon publication of the FCA's Policy Statement (PS25/11) on 22 July 2025.
Chapter 1 What changes have been made?
The changes that were proposed in Consultation Paper 25/11 (CP25/11 – see our related article here) have mostly been taken forward by the FCA, as summarised below. See Policy Statement (PS25/11) here and the related Handbook instrument here for more detail.
Advised sales
- Spoken or interactive dialogue between a firm and a customer during a sale will no longer trigger a requirement for the firm to provide regulated mortgage advice. This will make it easier for execution-only customers to get the right information before taking out a mortgage.
- The FCA has decided to retain the requirement that customers positively elect to proceed with an execution-only sale where they have had interactive dialogue with the firm. This is to mitigate the risk of customers thinking that they have received advice and benefit from the protections of the FCA’s rules for assessing suitability.
- Firms need to consider whether processes are appropriate to identify execution-only customers for whom advice, or other customer support, may be necessary to avoid causing foreseeable harm in relation to entering into or varying a regulated mortgage contract.
Affordability assessments
- The requirement for a full affordability assessment when reducing a mortgage term has been removed. Firms can therefore assess affordability in a way that is proportionate to the customer’s needs if a customer seeks this change to their mortgage contract. However, they must keep in mind their obligations under the Consumer Duty. For example, they should monitor and assess customer outcomes to ensure that their affordability assessments are appropriate.
- The modified affordability assessment may now be applied to a new mortgage contract with a new lender where it is more affordable than (a) the customer’s current mortgage, or (b) a new mortgage product that is available to the customer from their current lender.
Whether lenders will take advantage of the flexibility introduced by the FCA will ultimately depend on their risk appetite and a customer’s individual circumstances.
Removal of non-Handbook guidance
The following non-Handbook guidance has been retired:
- Interest-only mortgages guidance (FG13/7); and
- Guidance for firms supporting existing mortgage borrowers impacted by rising living costs (FG24/2).
As part of this, there is a new rule and guidance in the FCA Handbook to clarify that firms must deal fairly with customers whose mortgage terms have expired with a balance outstanding and not take repossession action unless all other reasonable attempts to resolve the customer’s position have failed.
Gibraltar
Having assumed in its consultation proposals that there were no Gibraltar-based consumer mortgage lenders passporting into the UK, the FCA’s latest data shows there are a small number of Gibraltar-based mortgage lenders with permission to enter into mortgage contracts in the UK. The FCA has therefore now added a rule to clarify that the changes will apply to any Gibraltar-based mortgage lenders who may want to lend within the UK in the future.
Chapter 2 How can Hogan Lovells help?
The FCA highlights that the removal of the requirement for a full affordability assessment when reducing mortgage terms and dealing with maturing interest-only mortgages would rely on the Consumer Duty to be the main standard for firms to apply when dealing with customers.
Our combined legal and consulting teams are well placed to assist you in reviewing how risk is currently managed within your business, and how this might have to be adapted with the shift to increasingly outcomes-based regulation. We can help you in developing approaches to decision-making based on outcomes rather than specific rules.
Chapter 3 What else is on the horizon?
The PRA and FCA have recently announced an increase in the cap on mortgage lending at or greater than a Loan to Income (LTI) ratio of 4.5. Under Policy Statement 11/25 (PS11/25), the LTI flow limit which caps the number of new residential mortgages with an LTI ratio of 4.5 or more to 15% of a lender’s book, now applies to lenders that lend £150 million or more a year in residential mortgages. This replaces the previous threshold of £100 million a year.
Other mortgage lending measures referred to in the Chancellor’s July 2025 Mansion House speech, a related press release on the “Leeds Reforms”, and a separate press release focusing on home ownership are:
- Next step in the FCA’s Mortgage Rule Review: The FCA’s separate discussion paper (DP25/2) on the wider mortgage market and conduct regime (June 2025) remains open until 19 September 2025, after which the FCA plans to consider responses and decide its next steps See our article on the discussion paper here.
- Changes to LTI: The Bank of England is proposing to allow more lending at over 4.5 times a borrower’s income in any event (earlier this year, in her February–March 2025 remit letter, the Chancellor had encouraged the FPC to consider how policy could support first‑time buyers and home ownership, including revisiting the 15% cap on loans above 4.5× LTI).
- Mortgage Guarantee Scheme: There is now a permanent Mortgage Guarantee Scheme, the rules for which have recently been published by HM Treasury. Under this scheme, a government-backed guarantee is provided to increase access to 95% loan-to-value mortgages.
For more on the key initiatives announced as part of Mansion House 2025 and in the government’s Financial Services Growth and Competitiveness Strategy, take a look at this Our Thinking article.
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