December 16 – Ensuring the best of advice
A new debate has been added to the mortgage landscape recently. The volume of product transfer business being done directly by lenders is not included in Product Sales Data provided to the FCA and is not part of any statistics produced by the CML. This means that this activity is invisible. Current estimates are that this market could be as high as £100bn per annum in addition to the £240bn gross lending that is cited in market commentaries.
While some lenders have chosen to put borrowers through the advice process at remortgage, others have not. The former is most likely to trigger a revaluation of the property which in turn can affect loan-to-value. This affects rate, affordability and ultimately how much the borrower repays over the lifetime of the loan.
In looking at other markets, there has been a consistent drive from the regulator to encourage the customer to shop around. The market study into general insurance highlighted the need for providers or the broker to detail year-on-year cost increases in a bid to alert customers to how much they could save by switching provider, rather than automatically renewing their policies.
Similarly, insurers have recently been told to make pension savers aware that they could get a better annuity rate from another provider when they come to take their pension. This, noted the FCA, is even more critical in the pensions market because of the long-term nature of the product – once locked into an annuity rate, and with the government’s recent admission that a secondary annuity market is unworkable, customers are stuck with their original decision.
It begs the question then why the FCA appears less concerned by a seismic shift in the mortgage market by lenders to encourage straight product transfers often without advice at the point of remortgage? If full disclosure and shopping around is deemed good for the customer when purchasing a one-year contents insurance policy, how can it be justified not to shop around when locking into a 25-year term mortgage, even if the initial rate is for just 2 or 5 years?
This dynamic is fundamental to the future of the mortgage market and distribution. Across the board lenders are investing heavily in technology to improve customer experience both at the point of initial sale, but more particularly at remortgage. Where it is their decision to engage in an execution-only product transfer, the hassle factor is minimised dramatically as a direct result of the focus of this investment.
It is right that customers should have choice, but it is definitely not right that both regulators and the industry should be unable to see how many customers are encouraged to opt for a product transfer to a rate or terms that might not have been recommended to them by their original adviser. The ongoing refusal of lenders to disclose the volume of lending done on a product transfer basis is opaque at best and highly questionable at worst.
It cannot be acceptable to continue to sweep this under the carpet. Consumers must undoubtedly be allowed to choose a product transfer and there is room in the market for advice and execution-only remortgages. But lenders must disclose their volumes and stop hiding behind the small print allowing them to pretend this has no impact on customers’ long-term financial well-being.
It would be seemingly in keeping with the regulator’s previous approach to encourage consumers to shop around when faced with the choice to remortgage.
Robert Sinclair, AMI, Dec 16