Mortgage market shake-up could help older homeowners
Demand among older borrowers for mortgage products that could unlock thousands in housing wealth is not being met due to strict rules. Now the financial watchdog wants to change that.
Planned changes to the mortgage market could make it easier for older homeowners to access tens of thousands of pounds of wealth built up in their property.
The Financial Conduct Authority (FCA) wants to update affordability guidance for retirement interest-only mortgages, as part of a consultation into the wider home borrowing market launched today (9 June).
Rising house prices mean older borrowers collectively have billions of pounds of housing wealth locked up in their homes. But many are reluctant to move. Retirement interest-only mortgages can offer a solution.
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To help older borrowers access some of this housing wealth, the regulator is proposing to make changes that would mean affordability for joint retirement interest-only mortgage applications are assessed in the same way as for standard joint mortgages.
In practice this would mean lenders would not be obliged to always consider a sole borrower’s ability to afford the mortgage if the joint borrower passes away.
By removing this rule, lenders would be able to more flexibly determine – based on
their risk appetite and in line with mortgages conduct and consumer protection rules – how to assess whether the surviving spouse or civil partner could still afford the required payments or what their exit strategy may be.
David Geale, executive director for payments and digital finance at the FCA, said: “We’re living longer and how many people work has changed. Our mortgage rules need to keep pace so those who can afford to repay can borrow.
“Stronger protections mean we can now safely widen access to mortgage borrowing for those that may be underserved.”
What are retirement interest-only mortgages?
Retirement interest-only mortgages (RIOs) are designed for borrowers over 50 or 55. You only pay the interest each month, and the loan is only repaid when you pass away, move into long-term care, or sell your property.
RIO mortgages can help older homeowners because it can get harder to get a new mortgage as you get closer to retirement. A RIO lets you mortgage your home in later life or provides an alternative to equity release.
We compare equity release versus downsizing in a separate article.
How does a retirement interest-only mortgage work?
A retirement interest-only mortgage is similar to a lifetime mortgage where the loan is usually only paid off when you sell the house, die or move into long-term care.
But retirement interest-only mortgages have different risks compared to lifetime mortgages. In particular, they do not feature the roll-up of interest, meaning homeowners don’t run the risk of the equity in their home being eroded – allowing them to leave more to their loved ones in the form of an inheritance.
Retirement interest-only mortgages require a borrower to manage the ongoing monthly payments, whereas a lifetime mortgage does not require monthly payments.
Demand for retirement interest-only mortgages
FCA data showed there is demand for mortgage products among older homeowners. Yet sales of retirement interest-only mortgages remain low compared with lifetime
mortgages – 3,002 RIOs versus 26,974 lifetime mortgages in 2025, according to FCA figures.
Firms have told the regulator, including in responses to its discussion paper, that the availability of retirement interest-only mortgages are constrained due to its current guidance being too restrictive.
Richard Pinch, head of banking and credit advisory at financial services consultancy Broadstone, said: “The FCA’s proposals represent a sensible evolution of the mortgage market, recognising that traditional affordability assessments do not always reflect the realities of modern working patterns, income streams and borrowing needs.
“The regulator is seeking to give lenders greater flexibility through affordability assessments that better reflect real borrower behaviour and lifetime earnings patterns. The proposals could be particularly beneficial for groups that have historically found it more difficult to access mortgage finance, including the self-employed, those with variable income and older borrowers.”
Mortgage help for self-employed
The FCA is also seeking to do more to help self-employed people get mortgages. The self-employed have typically struggled to get home loans due to often having inconsistent income, making lenders more reluctant to lend to them, seeing them as more risky.
FCA product sales data from 2025 shows around 6% of mortgage sales included at least one borrower whose employment status was recorded as “self-employed” at application. This compares to around 13% of the workforce who are self-employed, including around 1-2% who are independent contractors or locums.
Proposals include reducing barriers for lenders to offer flexible repayments for people with variable income, like the self-employed, and lend to those paid in foreign currency.
The FCA is also encouraging lenders to assess affordability based on a person’s “full and current situation”, rather than automatically excluding people because of minor or past credit history issues.
Sarah Coles, head of personal finance at AJ Bell, said: “Developing products to better suit people’s lives makes perfect sense. Self-employed people with lumpy incomes have been forced to contort their finances into paying the same sums each month under existing rules.
“A change could allow them to access products that are flexible enough to fit around their lives and their needs instead.”
