Interest-only mortgages could be reintroduced in the UK as part of a review of mortgage rules by the UK financial watchdog that aims to support home ownership and help boost economic growth.
The Financial Conduct Authority launched a consultation to seek public feedback as part of a wider effort to help consumers better navigate the mortgage market and support economic growth.
Several areas are under consideration by the regulator, including updating responsible lending rules, preparing for increased demand for later-life lending, introducing greater flexibility to improve consumer understanding and innovation, and rebalancing risk appetite in mortgage lending.
In the FCA's mortgage discussion paper, there was a call for views on "whether our rules could better support more interest‑only mortgages".
These once-contentious products, branded a "ticking time bomb" by parliament's Treasury Committee in a review after the global financial crisis, "could be suitable for consumers who may struggle to afford a repayment mortgage and can support sustainable home ownership", the paper said.
David Geale, FCA executive director for payments and digital finance, said: "We want to evolve our mortgage rules to help more people access sustainable home ownership.
"Having achieved higher standards in the market, now is the time to consider allowing more flexibility in a trusted market. Changing our mortgage rules could make it easier for people to get onto the property ladder and manage mortgages into retirement."
The FCA noted that the mortgage market has changed significantly in recent years, with 68% of first-time buyers borrowing for 30 years or longer in 2024. Many homeowners are increasingly relying on housing wealth to fund retirement needs.
Challenges faced by renters were acknowledged by the regulator, who tend to face higher housing costs and greater vulnerability. The FCA’s 2024 Financial Lives survey shows renters are more likely to experience poor health and financial vulnerability compared with homeowners.
The mortgage market's resilience was highlighted, with improved lender conduct and historically low default rates in recent years.
But the FCA underlined that mortgage rules are only one factor influencing home ownership, which is also affected by housing supply, social policy, and economic conditions. Any rule changes will focus on maintaining consumer protection and market stability.
Feedback on the discussion paper will be open until 19 September before any rule changes are considered.