Retail banking and payments update – Mortgages Discussion Paper, Mortgages Guarantee Scheme and Stablecoins
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Financial Institutions 360: Retail banking and payments update
Read other sections of this edition of the Financial Institutions 360:
Mortgage Guarantee Scheme
On 15 July, as part of the Government’s Leeds Reforms, the Chancellor announced that the Government would offer a Mortgage Guarantee Scheme, with the aim of incentivising and sustaining the availability of 91-95% loan-to-value mortgages. Under the Mortgage Guarantee Scheme Rules, participating lenders will be able to offer high loan-to-value mortgages with a government-backed guarantee, similar to the scheme offered on a temporary basis during the Covid pandemic. It is envisaged that the new scheme will be available on a permanent basis.
Mortgage Review Discussion Paper
On 25 June 2025 the FCA published Discussion Paper DP25/2, with the aim of seeking views on the future of the UK mortgage market. The FCA is looking to understand the trade-offs and risks in changing its rules, and will understand a full cost benefit analysis of any proposals.
The DP invites comment on a number of areas including:
- Responsible lending: The FCA is looking at amending the rules relating to responsible lending, with a view to widening the criteria to allow for more lending to groups including first-time buyers, consumers on variable incomes and self-employed consumers.
- The FCA is considering changes to the current interest rate stress test, including whether there should be a central stress rate which is used, whether the five-year period should be amended to 10 years, and the 1% minimum stress margin.
- The FCA discusses whether it should be supporting the take-up of more longer-term fixed rate mortgages.
- The paper also discusses alternative methods of affordability assessments, including whether past payment of rent demonstrates affordability, and changes to interest only rules and affordability to help first time buyers, potentially relaxing the rules on having to have a repayment strategy in certain cases, and allowing greater flexibility for customers to switch between interest only and repayment mortgages without having to set up a repayment vehicle.
- Later life lending: The FCA is looking at the impact that later life lending may have on the regulatory framework and the market, as it considers that it is likely that the demand for such products will grow and some could be a way of supporting retirement.
- Customer communications: The FCA is asking for views on whether it should allow more flexibility in consumer communications, including by better aligning the rules in MCOB with the requirements of the Consumer Duty, as well as how rules can assist innovation including in relation to AI.
- In welcome news, the FCA discusses the need to review the European Standard Information Sheet, which has been in place for some time and is very prescriptive, and moving to a more outcomes-based regime.
- Risk appetite: Rebalancing the risk appetite in mortgage lending.
The FCA is asking for views on the topics raised in the DP by 19 September 2025. If the FCA decides to take forward any of the proposals, it will consult further on these.
Increased threshold for Loan to Income flow limit
On 8 July the PRA and FCA jointly published PS11/25 on Amendments to PRA Rulebook and FCA Guidance on the de minimis threshold for the Loan to Income flow limit in mortgage lending. In line with the earlier consultation, the de minimis threshold has now been raised to £150m from £100m.
Mortgage Rule Review
In May, the FCA published the Mortgage Rule Review (MMR) Consultation Paper CP25/11. A feature of the UK mortgage market has been the requirement for advice on mortgages where there is interactive dialogue (except in certain cases eg high-net-worth customers or business borrowing).
In this MMR CP the FCA is proposing to remove the requirement for advice where there is interactive dialogue. Instead, a new rule is proposed, under which firms will be required to consider whether their processes are appropriate to identify execution-only customers for whom advice, or other customer support, may be necessary to avoid foreseeable harm as part of meeting its obligations under the Consumer Duty.
In addition, the FCA is proposing to remove the requirement for a full affordability assessment when reducing the term of a mortgage. This would make it easier for consumers to reduce the term of their mortgage, where it is appropriate for them and would reduce the risk of borrowers being unable to meet contractual repayments later in life, where lifestyle changes are likely.
Stablecoins
On 28 May 2025, the FCA published a consultation paper on its proposed rules and guidance for the activities of issuing a qualifying stablecoin and safeguarding qualifying cryptoassets. The FCA is consulting on proposed rules and guidance for the activities of issuing a qualifying stablecoin and safeguarding qualifying cryptoassets, including qualifying stablecoins. These are being added to the Regulated Activities Order under legislation published in April.
The Treasury does not intend to bring stablecoins into payments regulation for now. The FCA is therefore not consulting on proposed requirements for firms carrying out payments using qualifying stablecoins.
The FCA’s proposed rules and guidance cover:
- Requirements for qualifying stablecoin issuers.
- Requirements for qualifying cryptoasset custodians.
On 28 May, the FCA also published CP25/15 on a prudential regime for cryptoasset firms.
The consultations close on 31 July 2025.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, July 2025
