New mortgage rules come into force

From today, new rules from the Financial Conduct Authority (FCA) come into force which will put common sense at the heart of the mortgage market and prevent borrowers ending up with a mortgage they cannot afford.

The key changes, which are the outcome of the FCA’s mortgage market review (MMR), mean that most people will get help from an adviser before taking out a mortgage.  Borrowers should also have greater certainty about whether they can afford their mortgage both now and in the event of future interest rate rises. 

Martin Wheatley, chief executive of the FCA, said:

"There has been huge effort both by the regulator and the industry to get to where we are today. Since the crisis, lenders have been taking a far more sensible approach to mortgage lending, and the MMR is designed to ensure that this common-sense approach continues.  We do not want to see mortgage lending return to the practices of the past where people were taking out mortgages they simply couldn’t afford.   

"While for some borrowers the questions being asked may seem more detailed, they should feel confident that practices which led to hardship and anxiety for consumers in the past will not be repeated."

The new regime will prevent a return to self-certification mortgages, as from now, lenders must always check a borrower’s income.

Those looking to take out interest-only mortgages will also see immediate changes. The new rules mean that lenders will ask to see plans for repaying the full loan once the interest-only period ends, instead of relying on increased house prices as the only repayment plan. 

The MMR changes come after five years of close working between the FCA, the industry and consumer groups to create and implement the new regime which comes into force today. 

The FCA has produced a guide for consumers on the new mortgage rules which will be available in branches of high street lenders and estate agents. This explains, for example, what details borrowers will need to provide of their monthly outgoings on basic household expenses and other commitments.

Notes for editors

  1. The new mortgage lending rules were confirmed in the Mortgage Market Review, finalised in October 2012.
  2. On 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  3. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  4. Find out more information about the FCA.