The mortgage industry is at a crossroads. With the Financial Conduct Authority (FCA) considering changes to affordability rules, the way lenders assess borrowers is set to evolve.

For years, the strict stress-testing of mortgage applicants has shaped the market, but a growing consensus suggests that these rules may have been shutting out viable borrowers, including those aged 50 to 90 and beyond.

The government has urged the FCA to reassess affordability requirements in an attempt to stimulate the housing market. While details are still unfolding FCA chief executive Nikhil Rathi, has acknowledged the need for a more practical and flexible approach. The challenge is to strike the right balance. Loosen the rules too much, and default rates could rise. Keep them too tight, and many financially stable borrowers will continue to be excluded simply because they do not fit into a predefined box.

Mortgage stress-testing has long been the benchmark for assessing affordability. Lenders use it as a safeguard to determine whether borrowers can handle financial shocks such as rising interest rates or sudden drops in income.

But for older borrowers, who often have a mix of pensions, investments, and rental income, the traditional approach can be an obstacle rather than a fair measure of financial security. Applying a one-size-fits-all framework to a group with such diverse income sources creates unnecessary barriers.

Moving towards a more inclusive approach

For too long, later life borrowers have been met with a default response of ‘no’. The industry needs to shift towards a more thoughtful, tailored approach that reflects real-life financial situations rather than standard formulas.

The narrative around lending to older borrowers must change. This is a demographic that deserves options, not obstacles. Instead of seeing later life lending as a risk, the industry should view it as an opportunity to serve a growing and financially capable customer base.

A more inclusive approach means rethinking mortgage products and criteria to suit the realities of today’s borrowers. That means offering a broader range of products to fit different needs—whether capital and repayment, interest-only, retirement interest-only (RIO), or equity release.

It means taking a holistic view of income sources, acknowledging that pensions, investments, and rental income are just as valid as a traditional salary. It also requires moving away from rigidity and embracing the nuances of affordability, ensuring that viable borrowers are not excluded by outdated rules.

Innovation in later life lending

Technology can enhance efficiency; but the human side of lending remains essential. Responsible lending is not just about numbers on a screen; it is about understanding the people behind them. A thoughtful, empathetic approach ensures that borrowers are not just assessed but truly heard. Fact-finding, clear communication, and a commitment to customer-first lending will always be the cornerstone of responsible financial decision-making.

As the industry moves towards regulatory change, those who embrace flexibility, innovation, and customer-centred thinking will be best positioned to thrive. Later life borrowers should not be an afterthought in mortgage lending. With the right approach, they can – and should – be at the heart of a more dynamic and inclusive mortgage landscape.

Les Pick is sales director of equity release at LiveMore