FCA Moves to Widen Access to Retirement Interest-Only Mortgages

The Financial Conduct Authority (FCA) has launched a consultation proposing to widen access to retirement interest-only mortgages for older homeowners, alongside a package of affordability reforms covering self-employed borrowers and those with variable income.

The consultation, published on 9 June, targets a product that has remained stubbornly niche despite clear demand. In 2025, lenders sold just 3,002 retirement interest-only mortgages (RIOs) against 26,974 lifetime mortgages, according to FCA product sales data cited in the announcement. Firms have told the regulator that current affordability guidance is too restrictive and directly constrains supply.

The Case for Retirement Interest-Only Mortgages

RIOs are designed for borrowers aged over 50 or 55. The borrower pays only the monthly interest; the loan itself is repaid when the property is sold, the borrower moves into long-term care, or they die. Unlike a lifetime mortgage, there is no roll-up of interest, so housing equity is not gradually eroded and more can be passed on as inheritance.

The scale of the underlying market is not trivial. According to an FCA press release, there are 1.67 million full interest-only and part capital repayment mortgage accounts outstanding in the UK, representing 17.6% of all outstanding mortgage accounts, based on MLAR data from H1 2017. FCA Financial Lives research from 2017 found that 70% of all interest-only and part capital repayment mortgages are held by customers aged over 45.

The FCA identified maturity peaks for this cohort: the next two fall in 2027/2028 and 2032, with those groups including less affluent borrowers who had higher income multiples at application, higher rates of mortgages converted from repayment to interest-only, and lower forecast equity levels. That demographic overlap with RIO’s target borrower makes the timing of this reform relevant.

An earlier FCA impact assessment projected around 21,000 RIO sales per year from 2021/22, based on 12 lenders surveyed, with average loan sizes of £95,600 for new lending and £71,000 for remortgages. Actual volumes have fallen well short of that projection, which is consistent with lenders’ feedback that regulatory constraints have suppressed the market.

What the Affordability Change Would Mean in Practice

The central proposal is to assess joint RIO applications in the same way as standard joint mortgage applications. Under current guidance, lenders must generally consider whether a sole borrower could still afford the mortgage if the joint borrower dies. The FCA wants to remove that obligation, giving lenders discretion to determine, based on their own risk appetite and within consumer protection rules, how to evaluate whether a surviving spouse or civil partner could service the debt or what exit strategy they might have.

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.’

Richard Pinch, head of banking and credit advisory at Broadstone, welcomed the direction: ‘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 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.’

Self-Employed Borrowers and the Affordability Gap

The consultation sits within a broader Mortgage Rule Review (FS25/6) that covers affordability assessment of certain part-and-part and low-start mortgages, recognition of rental payment data in affordability assessments, and updated requirements for credit-impaired borrowers.

On self-employment, the FCA’s own product sales data from 2025 shows around 6% of mortgage sales included at least one self-employed borrower at application, against around 13% of the workforce classified as self-employed, including around 1 to 2% who are independent contractors or locums. The gap between labour-market share and mortgage-market share is the problem the proposals aim to close.

Proposals include reducing barriers for lenders to offer flexible repayment structures for borrowers with variable income and to lend to those paid in foreign currencies. The FCA is also encouraging lenders to assess affordability based on a borrower’s ‘full and current situation’ rather than applying automatic exclusions for 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.’

The consultation closes in due course, with the FCA expected to publish its response and any rule changes thereafter. The real test will be whether lenders, given the new flexibility, actually expand their RIO product ranges, or continue to treat a product that has underperformed its own regulator’s projections for four consecutive years as a low-priority line.