CP26/18 is the FCA's consultation on targeted changes to the mortgage rules in MCOB, published on 9 June 2026 as part of its work to support first-time buyers and borrowers the market serves less well. The changes are permissive: lenders may use the extra flexibility but are not required to change their policies. The consultation closed on 28 July 2026, and the FCA expects to publish final rules in the second half of 2026.
The proposals sit alongside the FCA's change to the loan-to-income flow limit from 28 October 2026, covered in our article on high loan-to-income mortgages.
The proposals at a glance
| Area | Current position | Proposal |
|---|---|---|
| Interest-only | Prescriptive repayment strategy expectations | Lighter requirements for interest-only elements below 25% and between 25% and 50% of value; follow-on products and conversion to repayment accepted; tailored dialogue where evidence is not available |
| Retirement interest-only (RIO) | Guidance to test whether a surviving partner could afford the loan alone | Guidance removed |
| Variable or irregular income | Rules framed around monthly payments | "Regular contractual payments"; support for alternative data such as Open Banking |
| Credit-impaired borrowers | Broad glossary definition | Limited to debt consolidation affordability and regulatory reporting |
| Foreign currency loans | Prescriptive 20% exchange rate trigger | Consumer Duty-based assessment; foreign currency loans separated from non-sterling income |
| Bridging loans | Maximum regulated term 12 months | Up to 24 months including extensions; no affordability reassessment on extending a non-roll-up loan |
Why the FCA is proposing these changes
The FCA's view is that some MCOB rules, written before the Consumer Duty, restrict lending to borrowers who could afford a mortgage but do not fit standard patterns: the self-employed, people with variable income, older borrowers, people with past credit difficulties and people earning in other currencies. With the Consumer Duty now in place, the FCA wants firms to make judgements based on the customer's circumstances and to evidence good outcomes, rather than apply fixed tests.
The changes in more detail
Interest-only. The FCA proposes lighter expectations on repayment strategies where the interest-only part is a smaller share of the property value, and would allow follow-on products and a later switch to repayment to count as strategies. Where evidence of a strategy is not reasonably available at the start, lenders could use a tailored conversation with the borrower instead of a fixed evidence list. Lenders using this flexibility will need a clear record of the conversation and a plan to review the strategy during the mortgage.
Retirement interest-only. The guidance that lenders should test whether a surviving spouse or civil partner could afford the loan alone would go. Lenders would still need to assess affordability for the borrowers in front of them and consider foreseeable changes in income.
Variable and irregular income. Changing "monthly payments" to "regular contractual payments" and supporting alternative data, such as Open Banking transaction histories, helps lenders assess the self-employed, contractors and people paid irregularly. Lenders should set rules for which data they accept, how far back they look, and how they treat volatility.
Credit-impaired borrowers. Narrowing the definition means a past credit issue would no longer label a borrower as credit-impaired for most purposes. Lenders should still consider credit history in their affordability and risk assessment.
Foreign currency. Replacing the fixed 20% exchange rate trigger with a Consumer Duty-based assessment gives lenders more room, but also more responsibility to judge and record when currency risk makes a loan unsuitable.
Bridging. Extending the maximum regulated term to 24 months reflects how long many property transactions and refurbishments take. Lenders should keep strong governance over exit strategies so longer terms do not hide affordability concerns. That includes monitoring of loans approaching term, early contact with borrowers whose exit is at risk, and clear rules on when an extension is appropriate.
What it means for lenders
Lenders that want to use the new flexibility will need to:
- update credit policy and affordability models, including the use of alternative data for variable income;
- define how interest-only repayment strategies will be assessed under the lighter requirements;
- decide whether to extend bridging terms and how extensions will be governed;
- replace the foreign currency trigger with a documented Duty-based assessment;
- record the reasoning in their Consumer Duty outcomes monitoring, including for vulnerable customers.
Our guide to MCOB 11.6 affordability controls covers the existing affordability framework these changes sit within.
What it means for brokers
Brokers should expect lender criteria to change unevenly. Some lenders will adopt the new flexibility quickly, others not at all. Advisers will need to understand each lender's position and explain it to customers, especially for interest-only, later-life and variable-income cases. Suitability files should show why a product using the new flexibility was right for the customer.
Brokers should also review how they gather information on variable income and foreign currency earnings. If lenders accept alternative data such as Open Banking transaction histories, brokers will need to collect it consistently and explain to customers how it will be used. Firms should update fact-find templates and data protection notices accordingly, and train advisers on the questions lenders will now ask. Our article on mortgage advice suitability sets out what good files show.
Risks to manage
| Risk | Control |
|---|---|
| Lending to borrowers who cannot afford repayments | Robust affordability evidence and stress testing within the new framework |
| Interest-only borrowers without a credible repayment route | Documented strategy review at origination and during the term |
| Inconsistent decisions on variable income | Clear rules for using alternative data, with quality assurance |
| Poor outcomes for vulnerable customers | Vulnerability identification and tailored support |
| Bridging extensions masking affordability issues | Governance over extensions and exit strategies |
How this fits with other mortgage changes
CP26/18 is one of several changes to mortgage regulation in 2026. The loan-to-income flow limit changes from 28 October 2026, the FCA continues to focus on Consumer Duty outcomes for mortgage customers, and work on later-life lending, innovation and protections for vulnerable customers is running separately. Lenders and brokers should plan these changes together rather than as separate projects, because they affect the same credit policies, advice processes and outcomes monitoring. Our guide to FCA compliance for mortgage providers gives the wider picture.
A practical plan
- Decide at board level whether to adopt each permissive change, and why.
- Update credit policy, affordability models and procedures for the changes adopted.
- Update Consumer Duty outcomes monitoring to cover the new lending.
- Train underwriters and brokers on the changes and their limits.
- Brief broker panels on the lender's position.
- Review the first cases under the new approach through quality assurance.
Lenders that decide not to adopt some or all of the changes should still record that decision and the reasons, because brokers and customers will ask, and the FCA may ask how the firm considered the changes against its Consumer Duty obligations to underserved customers. A decision not to lend to a group that the rules now allow firms to serve is a commercial choice, but it should be a considered one.
How regulatory counsel helps
We review credit policies, affordability frameworks and Consumer Duty evidence for lenders, and advice processes and file quality for brokers. Our mortgages and home finance practice supports firms preparing for the final rules.