May 18 – Mixing it all up

We have now got the results of the Mortgages Market Study from the FCA and it makes interesting reading.

The FCA wants to make it easier for consumers, at an early stage, to identify which mortgage products they qualify for, to assess and compare those products and, ultimately, to take out a mortgage.  The industry is encouraged to develop tools that combine customer and product data to show how monthly payments are impacted by the relationship between different product rates and fees (and whether any fees are paid up-front or rolled into the loan); the effect of interest rate changes on mortgage payments (possibly linking with third party forecasts of base rate changes); for existing mortgage customers, whether and when they might save money by switching.

They also suggest that one way of “helping to ensure that customers who don’t need advice don’t have to take it” would be to remove the requirement for almost all interactive sales to be advised.  The FCA is considering clarifying or relaxing its rule that is designed to prevent firms steering consumers away from advice. Although not the main intention, the rule has led firms to avoid marketing their execution-only channels. But the FCA would only want to consider this if “there are effective means of fostering execution-only sales across both lenders and intermediaries”.  The FCA might also modify its guidance to encourage development of new tools to help consumers find the right mortgage product, for example, by adopting a narrower view of what constitutes steering consumers towards particular mortgage products.  The risk of course is that this might allow non-advised on-line solutions which have no consumer safeguards or protections.

The FCA wants to explore ways to enable consumers to compare intermediaries on the basis of factors such as fees; areas of expertise/relevant markets and products covered; whether a panel is used, and if so, which lenders are on it; distribution/concentration of business to particular lenders; number of complaints.

The FCA intends to explore options to help mortgage prisoners.  It is encouraging a voluntary industry-wide agreement to approve applications for a new mortgage deal from existing customers whose most recent mortgage was taken out before the financial crisis and who are up-to-date with payments.  It will also consider asking lenders to contact affected customers, a year or so after moving onto a reversion rate, giving them a simple and straightforward means of moving to a cheaper mortgage.  The FCA will separately discuss possible solutions regarding inactive lenders with firms, consumer groups and government.

The intermediary sector is likely to be concerned about the view that the advice and suitability rules are hindering consumer choice.  Any dilution of the rules to facilitate online solutions will need careful assessment as the Mortgage Market Study rightly recognised the need to establish, through advice, the suitability of a mortgage for a customer.  The FCA has always stressed that suitability is not price-driven so this is a significant attitude shift.  Anything which will dilute the opportunity for consumers to benefit from advice runs the risk of moving the industry and consumer protections significantly backwards.

We are keen to consider the best way to deliver a tool that allows consumers to compare the service provided by brokers.  The Money Advice Service already provides this for pensions advice and it was originally intended to extend this directory to include mortgage advisers.  We will work with the FCA and the Money Advice Service to consider if this or other approaches could provide the most effective solution.

Robert Sinclair
May 2018