Jul 18 – Set them free

Following my article last month on the significant work undertaken by the FCA which is set out in their Mortgages Market Study Interim Report it is important that I return to the same subject.  This is because our sector now faces its biggest challenge since the early days of the Mortgage Market Review in 2009, before we got the importance of advice enshrined in the rules in 2012 and introduced in 2014.

The Mortgages Market Study sets out 4 challenges to the industry to resolve in the shape of:
dealing with mortgage prisoners;
helping customers have certainty of which mortgages they can get and allow them to transact direct;
provide a tool to find a ‘trusted’ broker;
and consider amending the advice rules to allow guidance linked to execution only sales.

We consider that these are significant changes which might not always work in the best interests of consumers.  Since the then FSA gave us the certainty of the new rule book in 2012, we have seen develop a highly competitive market which requires advice to help consumers understand what they need not what they think they want.  We also have great discussions on what protection products the customer needs and can afford.  Ensuring robust discussions which challenge consumer assumptions is essential.  Whilst the cheapest price will work for some, there are often issues on income types, employment status, property type and some expenditure which needs placing with a lender who understands these particular wrinkles.  My biggest concern is that on the basis of reading all of the documents published, the FCA has neither proved the need for this degree of change nor delivered a cost benefit analysis to support the recommendations.

We are speaking to our fellow trade bodies to gain broad support for our views and talking to the teams at the FCA to register our concerns.  These changes should not be rushed nor should we assume that the consumer lobby or all firms will support these changes. We will be asking our member firms to respond to the consultation based upon our draft response which we will share with them.  The work on mortgage prisoners is welcome and as much data as can be shared with the lender trade bodies would be most welcome.

Our core objection is that we think that the market is already moving forward on these issues with a range of firms, both new and existing, developing a range of solutions which will improve the customer journey.  As the data reviewed dates back to 2015 and 2016 and the field-work effectively ceased in mid 2016, the progress made in the last year is largely ignored.   It is our view that intervention in the scale proposed now is likely to stem innovation rather than propel it.  It should not be the role of trade bodies or indeed the regulator to intervene in commercial areas to compete with existing providers or select one firm over others to deliver solutions.

We have a market where many lenders choose not to sell direct, not advise or accept execution only deals.  We have some lenders who have limited capacity to deal direct with consumers, but it should never be only on an execution only basis.  This does not sit well with ensuring the right consumer outcome.  Any market solutions must embrace all participants, not just those large lenders with huge legacy back books who need change to survive by reducing their costs at the expense of consumer advice and responsibility.

AMI will always champion the consumer and their right to have full regulatory protections as well as the need for us to embrace technology and change to deliver great, competitive, best priced products.   We believe the market is already impelled to change and does not require interventions of the type suggested. We will not support any move to grow execution only at the expense of FCA, FOS and FSCS protections.  These would be backward steps based on price only analysis.  Our customers who have enjoyed great advice understand its value, and we need the FCA to recognise its benefits and not buy the simple direct fintech based offering compromise which is opaque about its actual processes.

The report lifts the lid on the volume of product transfer business being done by lenders without advice.  Taking this into account, MMR did not change the shape of the UK mortgage market and participants have found ways to service consumers effectively.  I would want to see a better analysis of cost benefit before buying into the changes proposed.

Robert Sinclair
July 2018