June 16 – Competitive Us
At heart of the FCA competition review has to be that we end up with a mortgage market which works even better for consumers. The 2016 mortgage market must be seen as having a great variety of products at prices which have never been seen before. Perhaps only in the heady days of 2006 have we seen more choice for more consumers with minimal pricing.
However the market today is more considered on affordability and appropriate loan to value. There is also the need to evidence income and a real move away from interest only loans being the predominant mortgage type. The other main difference has been the move to step away from non-advised transactions to ensure consumers receive advice on what are significant transactions even when remortgaging or undertaking a product transfer.
The core foundation of MMR was that the mortgage is a significant transaction with a large number of competing lenders supplying a wide variety of mortgage types and with unique approaches to underwriting. This signified a need to promote a proper suitability assessment whenever the borrower was not certain of the product they wanted. The rules allow firms to promote their products both to new borrowers and to existing clients and complete the transaction on an execution only basis, where the customer has sufficient market knowledge to feel confident. It was therefore disappointing to see lenders through their submissions looking to dilute these real consumer benefits in their approaches to the competition review. The apparent desire to want to avoid using execution only and move to consider a new non-advised landscape should be treated with suspicion.
We have also seen some claims around the construction of panels. Some lenders are concerned that they are omitted from some broker lists. Whilst there may be a legitimate concern that a consumer may only be eligible for a limited number of lenders, and that a broker may not have access to that mortgage, a firm which fully discloses the limitations of its service offering should not be penalised. If that was the case, then a lender that only offers its own products should be at the front of the queue for any remedies that might be required. Where firms on both the lender and broker side make genuine decisions based on their commercial considerations in a transparent process and make any limitations clear then this must be allowed. Where there is no suitable available mortgage solution, but a market one, the rules already require a referral on.
My other call for common sense is on procuration fees. This is not an investment market where firms are competing for the cash and savings of consumers. This about brokers introducing a customer to a lender who will earn profit from the enterprise. A service paid from the product works well as it does not discriminate against the vulnerable or less cash rich. If there is any evidence of bias let us deal with those who abuse the trust in the system, not remove what works well in this market. Having to demand consumer fees in investments shut down most banks advice arms, and that would not welcomed by AMI.
This review should have resulted in the market being praised for having embraced change, coped with MMR and MCD and continued to provide great products, choice and advice through and out of the Great Recession. Instead what looks like party politics means that we will spend the next 18 months proving how good we all are, but risking remedies that could have many unintended consequences. You only need to look at how hard it is now to advise on competitively priced ASU products to see what happens when Competition Lawyers set the sales standards for your market.
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