Interest-only mortgages are back in the regulatory conversation, but the headline is not that the rules have already changed. The Financial Conduct Authority (FCA) consulted in 2026 on possible adjustments to mortgage lending rules, including interest-only and part-and-part loans. Its consultation closed on 28 July. As at 23 October 2026, the FCA says it will publish its feedback and a policy statement after reviewing responses; it expected that work in the second half of 2026. Until final rules are issued and take effect, borrowers and lenders should distinguish proposals from the requirements currently in force.
With a full interest-only mortgage, monthly payments cover interest but do not reduce the capital borrowed. A part-and-part mortgage combines an interest-only portion with a repayment portion. The lower scheduled payment can alter affordability, but the outstanding capital still has to be repaid by the end of the term. It is not a debt-free route to ownership.
The FCA’s existing rules require a lender to have evidence of a clearly understood, credible repayment strategy with the potential to repay the capital and relevant accrued interest. The lender must also assess affordability under the applicable rules. The repayment strategy cannot simply assume that house prices will rise. Lenders must review the strategy at least once during the mortgage term and discuss appropriate steps where concerns arise. These protections remain relevant while the review is under way.
The FCA’s June 2026 consultation proposed giving firms more flexibility to consider individual circumstances, including for some first-time buyers and underserved borrowers. It covered interest-only and part-and-part lending alongside other areas such as variable income, credit history and later-life borrowing. The regulator said its proposals would retain responsible-lending safeguards and lenders’ duty to check that a mortgage is affordable. That is a proposal, not a promise that any particular applicant will qualify or that lenders will offer a product.
The FCA’s 2025 discussion paper recorded that interest-only mortgages represented 4.5% of regulated mortgage sales in 2024, compared with 39% in 2007. Those historic figures show why the subject is sensitive: past borrowers sometimes reached the end of a term without enough money to repay the loan. The current rules focus on a credible plan and ongoing review; a lower initial payment alone does not solve the capital repayment problem.
For homeowners, landlords or prospective buyers, the practical takeaway is to check the terms of any existing loan and not rely on a proposed rule change. Anyone considering a mortgage should compare the full cost, repayment plan and risks with a suitably qualified adviser. This article is general information, not personal mortgage or financial advice.
Sources: FCA consultation CP26/18, opened 9 June and closed 28 July 2026; FCA Handbook MCOB 11.6; FCA discussion paper DP25/2.