Mortgage lending and intermediation are among the most closely supervised areas of UK retail financial services. Firms operate under a detailed conduct rulebook in MCOB, an outcomes-based obligation under the Consumer Duty, and a supervisory approach that has moved from periodic portfolio letters to an annual Regulatory Priorities report directed at boards and chief executives.
This article sets out the regulatory framework applying to mortgage lenders and intermediaries, the FCA's current priorities, the areas in which supervisory work has identified weakness, and the practical components of a compliance framework.
Which firms are in scope?
Entering into a regulated mortgage contract as lender, administering a regulated mortgage contract, arranging or advising on regulated mortgage contracts, and agreeing to carry on any of those activities are regulated activities requiring FCA permission.
The regulated population includes mortgage lenders, mortgage administrators, mortgage intermediaries and networks, second charge lenders and brokers, lifetime mortgage and home reversion providers and advisers, and appointed representatives operating under a principal firm's permissions.
Buy-to-let lending falls outside the regulated mortgage contract definition unless it constitutes consumer buy-to-let, which carries its own registration and conduct requirements.
The regulatory framework
MCOB. The Mortgages and Home Finance: Conduct of Business sourcebook governs financial promotions, disclosure, advice and selling standards, responsible lending and affordability, charges, arrears and repossession handling, and specific requirements for lifetime mortgages and home reversion plans.
The Consumer Duty. Firms must act to deliver good outcomes for retail customers. The Duty operates through the cross-cutting rules - acting in good faith, avoiding foreseeable harm, and enabling customers to pursue their financial objectives - and the four outcomes covering products and services, price and value, consumer understanding and consumer support.
Responsible lending. MCOB requires lenders to assess affordability, taking account of income, committed expenditure, basic essential expenditure and quality of living costs, and to apply an appropriate interest rate stress.
Arrears and forbearance. MCOB sets requirements for dealing with customers in payment difficulty, including the obligation to consider forbearance options and to treat repossession as a last resort.
SM&CR. Individual accountability applies, with Senior Management Functions, Certification and Conduct Rules calibrated to the firm's classification.
SYSC. Governance, risk management, compliance oversight, outsourcing and recordkeeping requirements.
Financial crime. The Money Laundering Regulations 2017 and the FCA's Financial Crime Guide, with mortgage application fraud a persistent sector risk.
Appointed representatives. Principal firms carry responsibility for the regulated activities of their appointed representatives, with SUP 12 setting out appointment, oversight and termination requirements.
The FCA's 2026 priorities for mortgages
The FCA issued its Regulatory Priorities report for Mortgages on 12 March 2026. Regulatory Priorities reports replace portfolio letters, are published annually, and are directed at firms' boards and chief executives.
Three priorities are set out.
Improving consumer outcomes under the Mortgage Rule Review
The FCA's stated aim is a mortgage market that can adapt, innovate and meet consumer needs across the range from first-time buyers to those borrowing in later life. The regulator has recognised that consumers are entering the mortgage market later, borrowing for longer, and repaying into later life.
Firms are expected to engage with the Mortgage Rule Review and with the later life mortgage market study, and to share barriers, challenges and risks to delivering innovation in products and services. A policy statement is expected in the second half of 2026.
The tone of this priority differs from previous supervisory communication. The FCA has acknowledged that rebalancing risk involves trade-offs, while maintaining that responsible lending and high standards of conduct remain core principles.
Encouraging responsible lending and supporting borrowers in financial difficulty
The FCA has observed lenders adapting affordability assessments in response to clarification of the interest rate stress test rules and the Financial Policy Committee's updated loan-to-income flow limit recommendation.
The significant shift is in how affordability is framed. Rather than treating affordability assessments as a static requirement, the FCA expects firms to monitor actively whether their approach remains appropriate and continues to deliver good outcomes. This applies particularly where firms broaden access, launch new products, or where economic conditions or customer profiles change.
Second charge lending receives specific attention. The FCA's supervisory work found that affordability assessments could be more robust, with some lenders' expenditure assessments relying on assumptions that did not appear realistic for the customer base and did not adequately consider certain categories of expenditure. Second charge lenders are expected to review those findings against their own arrangements.
On borrowers in financial difficulty, firms are expected to support customers through difficulty and to offer appropriate forbearance. Supervisory work in this area continues through 2026.
Ensuring the quality of advice
The FCA expects advisers in intermediary firms and lenders to recommend products suitable for consumers' needs, including where customers are consolidating debt or borrowing into later life.
The regulator's focus extends beyond individual advice interactions to how advice quality is overseen and assured across the firm. Firms are expected to test consumer outcomes across the customer journey rather than assessing advice suitability in isolation.
Additional areas of supervisory focus
The report also identifies the following.
Disorderly failure. Firms are expected to have adequate systems, controls, processes, policies, governance and oversight to mitigate the risk of disorderly failure. The FCA has indicated that resilience testing and action plans should be sophisticated, detailed and tailored rather than generic.
Conflicts of interest. Particular attention to arrangements where consumers are directed to use specific mortgage intermediaries, including conditional selling by estate agent-based brokers.
Appointed representatives. Firms are expected to review onboarding, monitoring, oversight and wind-down arrangements holistically and on an ongoing basis, and to ensure advice fees are set and monitored consistently and in line with the Consumer Duty.
Financial crime. Mortgage firms continue to face application fraud and misuse of consumer data. The FCA has also noted emerging schemes advanced on pseudo-legal grounds seeking to challenge mortgage obligations.
Consumer Duty in a mortgage context
The Consumer Duty is not a separate compliance exercise sitting alongside MCOB. It reframes how MCOB obligations are assessed, moving the test from whether a rule was followed to whether the outcome was good.
Products and services. Whether the product is designed for an identified target market, whether distribution reaches that market, and whether products remain appropriate as customer circumstances change. Later life products, debt consolidation and interest-only lending attract particular scrutiny.
Price and value. Whether the total price, including fees and charges across the customer journey, is reasonable relative to the benefits. Fee structures across the lender, intermediary and any packager should be assessed together rather than in isolation.
Consumer understanding. Whether communications enable informed decisions at the point they are made. Testing rather than assumption is expected.
Consumer support. Whether customers can act on their interests without unreasonable barriers, including at the point of arrears, product transfer, or complaint.
The evidential requirement is the point firms most often underestimate. The Duty requires firms to monitor and evidence outcomes, which means management information capable of demonstrating outcome quality across customer segments, not activity volumes.
Building a defensible compliance framework
Affordability methodology. Documented, with the basis for income assessment, expenditure assumptions, stress rate application and any automated decisioning recorded. Assumptions should be tested against actual customer data and reviewed when the customer base or product range changes.
Advice quality assurance. A file review programme with sampling that reflects adviser risk, product complexity and customer vulnerability. Scoring applied consistently, findings fed back into training and competence, and outcomes tracked over time.
Consumer Duty MI. Outcome-focused rather than activity-focused, segmented sufficiently to identify differential outcomes, and reported to the board with commentary rather than as raw data.
Vulnerability. Identification, recording and response embedded in the customer journey rather than treated as a separate process.
Arrears and forbearance. Documented forbearance options, evidence of case-level consideration, and monitoring of outcomes for customers in difficulty.
Appointed representative oversight. Risk-based monitoring proportionate to the AR's activity, with file review, complaints analysis, financial monitoring and evidence of action where standards fall short.
Financial crime. A business-wide risk assessment addressing application fraud and identity risk specific to mortgage distribution, with transaction monitoring and data completeness addressed.
Governance. Board and committee oversight of Consumer Duty outcomes, lending standards, advice quality and conduct risk, with sufficient information to challenge.
Where firms most often have difficulty
Affordability assumptions untested against reality. Expenditure assumptions derived from generic benchmarks that do not reflect the firm's actual customer base, particularly in second charge and specialist lending.
Consumer Duty MI reports activity rather than outcomes. Volumes, completion rates and complaint counts, without analysis of whether outcomes differ across customer segments.
Advice quality assurance is volume-driven. File review meeting a target sample size without risk-based selection, and findings that do not feed back into adviser development.
Appointed representative oversight is documentary. Onboarding due diligence performed, ongoing monitoring nominal, and no evidence of action where an AR's standards have fallen short.
Vulnerability is a flag rather than a process. Customers identified as vulnerable without evidence that identification changed how they were treated.
Product governance is set at launch. Target market defined at product approval and not revisited as distribution patterns or customer outcomes evolve.
Regulatory developments to track
The Mortgage Rule Review, with consultation active during 2026 and a policy statement expected in the second half of the year.
The later life lending market study, expected in the first half of 2026 with potential policy proposals following.
Continued supervisory work on borrowers in financial difficulty through 2026.
A review of incentives and conflicts of interest, including conditional selling by estate agent-based brokers.
SM&CR reform, with the FCA working alongside HM Treasury and the PRA.
FCA expectations on the use of artificial intelligence, where firms are expected to test opportunities and risks while maintaining governance and controls and keeping Consumer Duty considerations central.
Dates and scope may change. Firms should confirm the current position against FCA publications.
About Regulatory Counsel
Regulatory Counsel advises UK and international financial services firms on authorisation, prudential and conduct requirements, governance, financial crime and regulator engagement.
Our work with mortgage lenders, intermediaries and networks covers FCA authorisation and variation of permission, Consumer Duty implementation and outcomes testing, responsible lending and affordability framework review, advice quality assurance and file review programmes, appointed representative oversight and principal self-assessment, arrears and forbearance review, financial crime frameworks, SM&CR implementation, compliance monitoring, remediation programme design, and preparation for supervisory engagement.
Contact our regulatory team at info@regulatorycounsel.co.uk.
This article is provided for general information and does not constitute legal or regulatory advice. Firms should confirm the current position against FCA publications and take advice on their specific circumstances.
Frequently Asked Questions
Entering into a regulated mortgage contract as lender, administering a regulated mortgage contract, and arranging or advising on regulated mortgage contracts are regulated activities requiring permission. Consumer buy-to-let carries separate registration requirements. Investment buy-to-let generally falls outside the regulated mortgage contract definition.
The FCA's Regulatory Priorities report for Mortgages, published on 12 March 2026, sets out three priorities: improving consumer outcomes under the Mortgage Rule Review, encouraging responsible lending and supporting borrowers in financial difficulty, and ensuring the quality of advice. The report also addresses disorderly failure, conflicts of interest and appointed representative oversight.
The FCA expects firms to monitor and oversee affordability assessments to ensure they remain appropriate and continue to deliver good outcomes, particularly where firms are broadening access. Assessments should not be treated as a static requirement set once and left unchanged.
The FCA found that affordability assessments could be more robust, with some lenders' expenditure assessments relying on assumptions that did not appear realistic for their customer base and did not adequately consider certain types of expenditure. Second charge lenders are expected to review those findings against their own arrangements.
The Duty requires firms to act to deliver good outcomes for retail customers across products and services, price and value, consumer understanding and consumer support. In a mortgage context it reframes MCOB compliance from rule-following to outcome assessment, and requires management information capable of evidencing outcome quality.
Principal firms are responsible for the regulated activities of their appointed representatives. The FCA expects firms to review onboarding, monitoring, oversight and wind-down arrangements holistically and on an ongoing basis, and to ensure advice fees are set and monitored consistently and in line with the Consumer Duty.
Yes. The Mortgage Rule Review is in progress, with consultation active during 2026 and a policy statement expected in the second half of the year. A focused market study on later life lending is also expected, with potential policy proposals following.