The FCA rule change everyone missed that could upend the mortgage market
The FCA has set out a new, more pragmatic approach to affordability assessments that could open up the market, increasing competition and benefiting consumers and lenders alike, says Fernando Zandona
Mortgages, and who provides them, have hardly changed in decades. The mortgage market remains one of the few sectors of UK financial services that seems impenetrable to the new breed of fintech providers. Ten lenders dominate the market, with just three controlling almost half of all lending.
This level of concentration does not create an environment where innovation thrives.
The industry likes to blame a lack of progress on tech. In reality, it’s capital, and the regulation that governs its availability. This is why fintech disruption has flourished in unsecured personal lending but largely bypassed mortgages. Conservative affordability rules, while rigid stress testing and high capital requirements made experimentation expensive and execution risk high. New underwriting approaches struggled to gain approval, while scale incumbents were structurally advantaged. The outcome was stability, but also stagnation.
That is now beginning to change.
In December, the Financial Conduct Authority (FCA) set out the next phase of its mortgage rule review, signalling a more pragmatic approach to affordability assessments and stress testing. It did not generate headlines – but it should have. By giving lenders more discretion to assess borrower affordability, the FCA is reducing the regulatory friction that has favoured scale incumbents and discouraged alternative underwriting models.
Deregulation?
This is not deregulation, nor is it a loosening of standards. Instead, it is an acknowledgement that rigid, one-size-fits-all tests increasingly fail to reflect the realities of today’s labour market. More people have variable incomes, multiple income streams or self-employed work. Many can comfortably afford repayments over the life of a mortgage, yet fail conservative stress tests designed for a different economic era.
Greater regulatory clarity around affordability does three important things. It reduces barriers for borrowers who are creditworthy but poorly served by existing rules. It lowers execution risk for lenders, making mortgage innovation more commercially viable. And it enables alternative underwriting models that better assess real-world affordability.
This shift also comes at a moment when policy and politics are moving in the same direction.
The Labour government has placed housing access, economic growth and labour mobility at the centre of its policy agenda, treating the mortgage market as a key part of national infrastructure. Alongside measures such as the Permanent Mortgage Guarantee Scheme, the FCA’s more flexible approach to affordability assessments reinforces a broader push to expand home ownership and support borrowers with less traditional income profiles.
The implications for competition are significant. While the market remains concentrated today, the barriers that kept it that way are weakening. This environment tends to favour challenger banks, specialist lenders focused on underserved segments and fintech-enabled lenders able to incorporate richer data into new underwriting models.
Technology still matters, but as an enabler, not a silver bullet. Digital-first operating models make it possible to launch, adapt and price mortgage products quickly, embed compliance into every step of the journey, and respond to regulatory change without wholesale system rewrites. By contrast, many incumbents remain constrained by legacy platforms that are costly to maintain and slow to evolve, limiting their ability to act even when new regulation allows it.
This does not mean established lenders have had their time. Scale, trust and customer relationships remain powerful advantages. But the competitive dynamics are shifting. As regulation opens up the market, speed and adaptability become more important. Standing still becomes a risk in itself.
There has been surprisingly little discussion in the press about what these mortgage reforms could mean. That silence may not last. Looking ahead to 2026, the UK mortgage market is likely to face a period of genuine upheaval, driven not by flashy technology or interest rate cycles, but by regulation moving in-line with economic reality.
For lenders prepared to move, this moment represents a rare opening. For those that are not, the danger is missing it altogether. Either way, UK plc will be better off.
Fernando Zandona is CEO of Mambu