Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Solutions. Read the original article for full details.

FCA Proposes Easier Mortgage Access for Self-Employed and Credit-Impaired Borrowers

The Financial Conduct Authority (FCA) has released proposals aimed at making it easier for self-employed and credit-impaired borrowers to access mortgages. The changes are outlined in consultation paper CP26/18 and are intended to help groups currently under-served by the UK mortgage market.

The FCA stated that mortgage rules must “keep pace” with the changing lives of homeowners. According to the regulator, self-employed, gig economy, contract and locum workers, as well as those with seasonal or irregular income, face challenges in securing mortgages. FCA product sales data from 2025 shows that around 6% of mortgage sales included at least one self-employed borrower, despite approximately 13% of the workforce being self-employed.

To address this, the FCA wants lenders to use more discretion when assessing affordability for these groups. Lenders are already permitted to agree to payment terms other than monthly instalments for those with variable or irregular income. The FCA proposes changing references in its handbook from “monthly payments” to “contractual payments” to encourage lenders to use flexible payment schedules, such as quarterly or other regular intervals. The proposals also include providing examples of evidence that would be sufficient for affordability assessments.

The FCA supports the use of alternative data sources, such as open banking, to give a more complete picture of a borrower’s financial situation. The regulator encourages lenders to innovate with payment structures that better align with consumers’ income patterns.

Credit-Impaired Borrowers

The FCA also addressed the treatment of credit-impaired borrowers. It noted that some mortgage firms are applying the definition of “credit impaired” more broadly than intended, which can exclude people from mainstream lending even if their financial circumstances have improved. The current definition includes borrowers with three months’ arrears or more on a previous loan in the last two years, a county court judgment (CCJ) over £500 in the last three years, or those subject to bankruptcy or an individual voluntary arrangement (IVA) in the last three years.

The FCA said that using this definition too broadly can deny access to mainstream mortgages and push borrowers towards higher-priced loans. The regulator highlighted that adverse credit, such as missed payments, is becoming more common, even among high earners. It also noted that recovery from financial difficulties may occur faster than the current handbook definition allows.

The FCA’s proposals aim to ensure that affordability assessments are based on a borrower’s full and current situation, rather than automatically excluding those with minor or past credit issues.