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Rules for mortgage lenders

This content applies to England & Wales

Mortgage lenders, affordability and mortgage regulation.


The amount that lenders are prepared to lend to buyers varies. Most will follow standard affordability rules and lend a sole buyer up to four times her/his gross annual income and joint buyers three times the gross annual income of one person plus the other income or twice the joint gross annual income. Other payments such as overtime or commission may be taken into account if they are received regularly.

From 26 April 2014, the Financial Conduct Authority (FCA) has required lenders to be satisfied that the borrower can afford the loan repayment comfortably and that the loan product is suitable for her/his needs and circumstances, before granting a mortgage.[1]

Regulatory regime

There are a number of different companies that act as mortgage lenders or their intermediaries. These include building societies, banks, finance houses, insurance companies and specialised mortgage companies. Their activities in connection with the lending to consumers are 'regulated credit activity' authorised and supervised by the financial services regulator, currently the FCA.

The majority of first-charge residential mortgages have been regulated by the FCA since 31 October 2004 as Regulated Mortgage Contracts under MCOB rules.

Second-charge mortgages to consumers (such as for debt consolidation or home improvement) have also been regulated by the FCA, but as regulated credit agreements under the Consumer Credit regime. From 21 March 2016 (but there are various transitional provisions)[2] these are regulated in the same way as first-charge mortgage contracts under MCOB rules, with the addition of some rules under the Consumer Credit Act 1974 which are retained (for example, prohibition on interest being increased on default under s.93, and the right to complete payment before the end of the mortgage term under s.94).

Buy-to-let mortgages to consumers (defined as 'persons who act for purposes which are outside their trade, business, or profession') have been subject to the same regulations from 21 March 2016.[3]

Firms wishing to lend, administer, intermediate, arrange or provide advisory services in relation to any ofthe above must be registered with the FCA and will be covered by the jurisdiction of the Financial Ombudsman Service.

Council of Mortgage Lenders

All mortgage lenders are eligible for membership of the Council of Mortgage Lenders (CML). The CML provides information to its members and represents their interests. It also produces written guidance to its members on matters concerning mortgage lending.

[1] FCA, MCOB 11.6.

[2] see Part 4 Mortgage Credit Directive Order 2015 SI 2015/910, as amended.

[3] see Part 3 Mortgage Credit Directive Order 2015 SI 2015/910, as amended.

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