The Financial Conduct Authority (FCA) has introduced a significant policy shift that could reshape the UK mortgage market, offering long-awaited relief to so-called “mortgage prisoners.” These are borrowers who have been stuck paying high interest rates for years, unable to switch lenders despite being up to date with payments. The FCA’s new rules, which came into effect on July 22, 2025, are designed to open the door to cheaper deals, potentially saving households thousands of pounds each year.
What Has Changed in the Rules
The FCA’s reforms are contained in policy statement PS25/11. At their core, they make it easier for borrowers to move their mortgage without facing unnecessary regulatory hurdles:
- Easier remortgaging to new lenders: Until now, the modified affordability test applied mainly when switching within the same lender. It can now be used when moving to a new lender, provided the new deal is demonstrably cheaper. Importantly, this includes all costs such as product and broker fees, not just the headline interest rate.
- No forced advice trigger: Previously, even a simple conversation about switching often counted as regulated “advice,” creating extra paperwork and costs. That requirement has been scrapped, giving consumers more freedom to explore options.
- Shorter terms allowed without full reassessment: Borrowers can reduce their mortgage term without going through another strict affordability check, provided they do not increase the overall borrowing.
These are permissive changes, meaning lenders are not forced to implement them overnight, but they now have the flexibility to adopt them.
Why This Matters Now
The timing of the reforms is crucial. According to market data, standard variable rates (SVRs) remain high, hovering around 7.4%, while new two- and five-year fixed deals are available around 4.5–5%. This gap is the largest in years, following the Bank of England’s August 2025 rate cut to 4.00%.
For many households, this difference is the equivalent of hundreds of pounds in extra costs every month. Without the FCA’s changes, mortgage prisoners would remain locked out of these cheaper deals, often for technical reasons rather than poor payment history.
Savings in Practice
The financial impact is clear:
- A £200,000 loan over 25 years, moving from 7.5% to 4.5%, would reduce monthly payments by around £366 (€422), or £4,396 (€5,070) per year.
- A £150,000 loan would save about £3,297 (€3,800) annually.
- A £300,000 loan could save close to £6,594 (€7,603) annually.
While product and broker fees (often around £999, ≈€1,150) eat into savings, the difference between SVRs and fixed rates remains substantial.
Who Stands to Benefit
The FCA estimates tens of thousands of households could benefit. Many of these borrowers took out mortgages before the 2008 financial crisis with now-defunct lenders, later transferred to inactive firms or investors. Although they have maintained their payments, they have been unable to pass modern affordability tests to switch.
Under the new rules, those who:
- Have been up to date with payments for the last 12 months,
- Are not increasing their loan (other than fees),
- And are remortgaging on the same property,
will be eligible to move if the new deal is cheaper.
Market and Industry Reaction
Industry experts see the move as both overdue and necessary.
“Today’s changes support growth by simplifying some of our rules, saving consumers time and money, while ensuring they still benefit from advice where needed,”
— Emad Aladhal, FCA Director of Retail Banking
Mortgage brokers and consumer groups have welcomed the change, but also note that the real test will be how many lenders adopt the new rules quickly. Lenders must balance offering relief to trapped borrowers with their own risk management and capital requirements.
The Bigger Picture
The reforms arrive at a time when household budgets remain under pressure from high living costs. By allowing more flexibility, the FCA hopes to stimulate competition in the remortgaging market and ease financial strain.
For the wider housing market, cheaper remortgaging could support demand and limit arrears, especially if more borrowers are able to lock into fixed rates before the end of 2025.
Practical Advice for Borrowers
Experts recommend that homeowners considering a switch should:
- Gather evidence of 12 months of on-time payments.
- Compare total costs, including fees, to ensure the new deal really is cheaper.
- Ask both current and new lenders for like-for-like offers to benchmark affordability.
- Consider advice if their case is complex—execution-only routes are available but not always wise.
Outlook
The FCA’s move is one of the most borrower-friendly shifts in years. While uptake by lenders will take time, the opportunity for trapped homeowners is real. With SVRs far higher than new fixed rates, the reforms could deliver life-changing savings for thousands.
For now, the message is simple: for those stuck paying 7% or more, the door is finally open to cheaper loans—if lenders are ready to step through it with their customers.
