FCA Proposes Wider Mortgage Access for Older Borrowers — What It Means

What is CP26/18?

CP26/18 is an FCA consultation paper published in June 2026. It sets out proposed changes to mortgage affordability guidance, with a particular focus on how lenders assess older borrowers — especially those on or approaching retirement. The consultation period closes on 28 July 2026, after which the FCA will consider responses before issuing any final rules.

Until any final rules are published and take effect, lenders are not required to change their current practices. What CP26/18 represents is a signal of regulatory direction — and for borrowers affected by the current rules, it could be an important one.

Key proposals in CP26/18

The consultation paper contains two proposals of particular significance for older borrowers and those advising them:

• Updated affordability guidance for retirement interest-only mortgages: The FCA proposes clearer guidance on how lenders should assess affordability for RIO products, which currently vary considerably between lenders. The aim is to reduce inconsistency and ensure that lenders are not routinely declining creditworthy borrowers on narrow grounds.
• Formal recognition of lifetime mortgages and RIO mortgages as valid repayment strategies: For interest-only borrowers approaching the end of their mortgage term, lenders typically require a credible repayment vehicle. CP26/18 proposes that lifetime mortgages and retirement interest-only mortgages should be formally recognised as valid repayment strategies under FCA guidance. This could be a meaningful shift — some lenders currently decline to accept equity release or RIO products as a repayment route, even where the borrower has suitable equity and income.

The FCA also proposes that lenders be encouraged to assess the full retirement income picture of older applicants — including pension income, investment income, and other assets — rather than defaulting to exclusion based on age or employment status alone.

Who could benefit?

The FCA estimates that approximately 30,000 interest-only borrowers could benefit from better access to switching options if the proposals are enacted. These are typically homeowners who:

• Took out interest-only mortgages in the 1990s or 2000s and are now approaching the end of their term
• Have equity in their property but do not have a cash repayment vehicle in place
• Have been declined or discouraged from switching to a RIO mortgage or equity release product under current lender criteria
• Are in or approaching retirement and have income that may not fit standard affordability models

Current FCA rules have created inconsistency in how lenders treat older borrowers. One lender may accept pension income for RIO affordability; another may not. The proposals aim to reduce that inconsistency and ensure borrowers are not systematically disadvantaged by their age or income type.

What is a retirement interest-only mortgage?

A retirement interest-only (RIO) mortgage is a residential mortgage product aimed at borrowers typically aged 55 and over. Monthly payments cover interest only — the capital balance is not repaid during the life of the mortgage. Instead, the loan is repaid when the property is sold, typically when the borrower moves into long-term care or passes away.

Unlike a lifetime mortgage, a RIO mortgage requires the borrower to make monthly interest payments. This means it is only suitable for borrowers with sufficient, stable income to service those payments. The benefit is that the outstanding balance does not grow over time — there is no compound interest roll-up.

RIO mortgages sit alongside equity release products as part of the later-life lending landscape. They are not the right solution for every borrower — a specialist adviser can help identify which product type, if any, is suitable for a given situation.

How this relates to equity release

The formal recognition of equity release (including lifetime mortgages) as a valid repayment strategy for interest-only borrowers is a significant element of CP26/18. If enacted, it would mean that a borrower approaching the end of an interest-only term could present a lifetime mortgage as their repayment vehicle — and lenders would be expected to treat this as a credible option under FCA guidance.

This does not mean equity release is automatically the right choice. A lifetime mortgage involves compound interest that rolls up over time and reduces the estate value. It may affect entitlement to means-tested benefits. It is a long-term commitment that requires careful consideration with the benefit of regulated financial advice.

What the proposals could change is the gatekeeping role that some lenders currently play — declining to allow equity release as a repayment route, even where the borrower and their adviser have assessed it as suitable.

What happens next?

The consultation closes on 28 July 2026. The FCA will review responses from lenders, consumer groups, advisers, and other stakeholders before determining whether and how to proceed. Final rules, if issued, would typically follow some months after the consultation closes — and would come with an implementation timeline for lenders.

Borrowers who are currently approaching the end of an interest-only term should not wait for regulatory change before seeking advice. The options available today — including RIO mortgages, lifetime mortgages, and downsizing — could already provide a viable route, depending on individual circumstances.

Verity Home advises across the full spectrum of later-life lending options: retirement interest-only mortgages, lifetime mortgages, and equity release. Our advisers are independent and whole-of-market — no obligation to proceed at any stage.