Lenders could be given more flexibility to look at individual circumstances and develop products that meet people’s needs if new proposals from the Financial Conduct Authority (FCA) are enforced.
The changes will allow lenders to offer flexible repayments to borrowers with ‘variable incomes’, such as the self-employed.
Lenders will also be encouraged to assess a potential borrower’s affordability based on their ‘complete and current’ situation, rather than foreclosing them if they have minor or historical credit problems.
Interest-only mortgages will be updated to make it easier for older homeowners to unlock the wealth they have built in their property.
And the FCA will also revamp the rules for interest-only mortgages to give lenders more flexibility.
David Geale, executive director for payments and digital finance at the FCA, said: “We are living longer and the number of people in work has changed. Our mortgage rules must keep pace so that those who can afford to repay can borrow.
“Stronger protections mean we can now safely expand access to mortgage lending for those who may be underserved.”
According to Sarah Coles, head of personal finance at AJ Bell, the FCA was “relaxing the restrictions” applied to the mortgage market after the financial crisis.
“It makes perfect sense to develop products that better fit people’s lives,” she says. “High-income self-employed people are forced to distort their finances under existing rules by paying the same amounts every month.
“A change could give them access to products that are flexible enough to fit their lives and their needs instead.
“Taking a more holistic approach to borrowers will also avoid the current situation where someone who has met all their financial responsibilities for years can be foreclosed on because of a small mistake they made years ago, when their life might have been very different.”
Experts say that both professionals and borrowers themselves must handle the relaxation of the rules carefully.
Karen Noye, mortgage expert at Quilter, said: “There will obviously be a delicate balancing act when it comes to widening access. Looser rules around affordability and lending structures, particularly around interest-only offers or later-life borrowing, may help improve access in the shorter term, but it will be crucial that borrowers do not make unsustainable commitments that could impact them later in the future.”
She added: “Anyone looking to get on the property ladder or considering making changes to their mortgage repayments should seek the support of a professional mortgage adviser wherever possible.”