Financial Conduct Authority reminds lenders of interest rate stress testing flexibility and sets timetable for evidence and consultations to improve mortgage access

The Financial Conduct Authority has reminded mortgage lenders that its rules provide flexibility in how they apply interest rate stress testing when assessing affordability, and it set out a programme of work aimed at improving access to mortgages. The FCA noted that lenders typically test whether a borrower could still afford a mortgage at higher interest rates and that, as interest rates fall, current market approaches to stress testing may be unduly restricting access to otherwise affordable mortgages. To consider further changes, it will shortly launch a call for evidence on current and alternative stress testing approaches and, in May, consult on early ideas to simplify rules so consumers can more easily remortgage with a new lender, discuss options outside a regulated advice process, and reduce mortgage terms to lower overall borrowing costs. The May consultation will also propose retiring outdated regulatory guidance, including its maturing interest-only mortgage guidance. Further work includes an Open Finance Sprint later in March, with experts including from the mortgage sector, to explore how smart data can enhance mortgage products and services. In June, the FCA will open a public discussion on the future of the mortgage market, including risk appetite and responsible risk-taking, alternative affordability testing, product innovation, lending into later life and consumer information needs.