Understanding the FCA’s Discussion Paper: Potential benefits… and risks

24 July 2025 As you might have anticipated, my latest article is going to delve a little into the Financial Conduct Authority's (FCA’s) Discussion Paper (DP) 25/2, because it clearly has the potential to be seismic for all mortgage market stakeholders, not least advisers.

In perhaps a break from what you might anticipate – and in true SWOT (strengths, weaknesses, opportunities and threats) analysis style – I wanted to use this piece to look firstly at the S and the O of the DP, the strengths and opportunities, before a further article looks at the weaknesses and threats. 

The Good 
So, let’s start with what I think could emanate out of this; those suggestions within the DP that have the potential to be turned into tangible shifts and deliver some key benefits to advisers in a brave new mortgage world.

First, there is a recognition by the FCA that the market has evolved considerably since the Mortgage Market Review (MMR) over a decade ago, and its current rules may no longer work as efficiently or fairly for many borrower groups.

The paper is peppered with talk about flexibility, which we should hope will not weaken consumer protections, but potentially rebalance a market that some believe has become a bit too risk-averse. This, it has to be said, is not a belief held by all, although of course we await to see what this may actually mean in tangible rule changes and their impact. 

Benefits to advisers and borrowers
Advisers may well be beneficiaries of such a move, particularly if the regulator is opening the door to a more inclusive approach to affordability. 

Take, for example, the potential changes to how lenders assess affordability for first-time buyers, self-employed borrowers, credit-impaired customers and those with variable income. There are clearly potential borrowers within such groupings who have not been able to meet existing affordability requirements, even though they are sometimes paying more in rent each month than they would for a mortgage.

Therefore, the idea of a rent-based affordability assessment – while still up for debate – could signal a sea change. If realised, it may well give advisers new tools to serve clients who have previously been excluded despite demonstrable track records of managing monthly housing costs. 

It’s not a silver bullet, but for advisers, it could be a chance to revisit client segments that have been parked for too long, and to support customers whose financial profile doesn’t fit neatly into a tick-box model. 

A similar argument could be made with regards to the five-year fixed rate stress test. If this is refined or replaced with a more dynamic, centralised model – or even if more lenders feel confident to use existing flexibility – it could open up access and potentially lead to more product activity and more successful applications for clients. 

A Truly Holistic Market 
Later life lending is another area where the DP has (finally?) found its voice.

The regulator seems to acknowledge what many of us have known for years, that retirement savings won’t cut it for a significant number of people, and housing equity will have to do more of the heavy lifting.

Encouraging more flexible products, and acknowledging the growing relevance of hybrids, drawdown facilities, and low-start mortgages, could significantly increase the range of options available.

For advisers, this means greater scope to add value through bespoke later life planning and more tailored, long-term advice. However, this is going to, in my view, require a change in terms of adviser qualifications and authorisations to do business in this space.

In that sense, the mention of ‘holistic advice’ in later life lending is interesting. The DP references shortcomings in the current approach, where advice can be narrow and product-led, rather than encompassing the full range of client needs.

If the FCA moves to encourage or even mandate more holistic advice models, it would likely increase the demand for fully qualified, multi-skilled advisers able to work in all sectors of the market.

Those already investing in wider qualifications – such as lifetime mortgages – stand to benefit, as the bar could be raised if this becomes a mandatory element of being an adviser.

More Dynamic Thinking 
Another aspect within the DP is its openness to digital innovation. The FCA recognises consumer understanding and engagement could be improved by letting firms innovate with artificial intelligence (AI), smart eligibility tools, and more personalised disclosure methods.

While some of this might feel like it’s geared towards lenders and platforms – which, of course, could be a threat to adviser business/income – it could also benefit advisers who embrace technology. Think client onboarding tools that pre-assess eligibility, AI-powered suitability reports that save hours of admin, or digital disclosures that help ensure Consumer Duty compliance.

It’s already happening. 

If regulators give advisers the freedom to harness these tools without tripping compliance wires, we may finally see a tech-enabled advice sector that doesn’t have to make any compromises and could be used as a shield against any attempts to row back on adviser distribution channels by lenders.

Of course, with all of this comes the need to stay close to developments and engage with the DP process. But for now, there’s a window of opportunity here to shape a more inclusive mortgage market and for advisers to be the main beneficiaries of this.

That said, we must also recognise this is not the whole story. Next time, I’ll take a look at the other side of the SWOT coin because, as much as there’s promise, there’s also potential peril if the industry – and the regulator – doesn’t get the detail right.