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FCA to make advisers explain if they have not recommended cheapest mortgage

The Financial Conduct Authority has published proposals for changes to its mortgage sales requirements.

Under the proposals, where a mortgage adviser has recommended a mortgage which is not the cheapest deal meeting the customer’s needs, they will be required to explain why a cheaper mortgage has not been recommended.

The consultation follows on from the Mortgages Market Study published earlier this year. The FCA identified several ways its advice rules are acting as a barrier to the development of new tools to help customers choose and buy a mortgage.

The regulator found that consumers who would like to buy a mortgage on an execution-only basis find it difficult to do so because they are diverted to advice and because execution-only sales channels are not always easy to use.

It suggests removing prescriptive requirements around a firm’s execution-only policy and making clear that firms may market and price execution-only channels differently to that of advised channels.

The FCA reports finding that many consumers are overpaying for their mortgages, even when they get advice.

FCA executive director of strategy and competition Christopher Woolard says: “The mortgage market is working well for most customers, but we have identified some areas where our rules are acting as a barrier to innovation. The changes we’ve announced today will allow firms to develop products and services which can truly meet the needs of customers.”

The FCA is also proposing to change its rules to make it clear that tools which allow customers to search and filter available mortgages are not necessarily giving advice. It will also be clearer that some forms of interaction, such as firms helping consumers with their applications, do not require advice.

UK Finance director of mortgages Jackie Bennett says: “The FCA’s proposals provide helpful clarity on the boundary between execution-only sales channels and mortgage advice.

“This should help ensure that firms can easily provide factual information to borrowers who opt to go through the execution-only route, helping them to choose or switch product quickly and efficiently. It will also support continued innovation, particularly in digital channels.

“The overwhelming majority of new loans are likely to continue being sold under an advised process, during which customers take part in a lengthy interview with the onus being on the lender or adviser to ensure that the mortgage is suitable for the borrower’s needs.

“UK Finance will be responding to this consultation in due course and will continue working with the FCA to make it easier for customers to choose the right product for them.”

The FCA is consulting on the new rules until 7 July 2019 and will publish its feedback and final rules around the end of the year.

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  • Chris Hulme 7th May 2019 at 4:58 pm

    Looks like the FCA is back to the “cheapest is best” approach on both counts. Have they learned nothing.
    If borrowers want Execution Only, they can apply online to a lender. I certainly wouldn’t transact EO business for the exact point Peter Turner mentions below.
    As far as reasoning why the cheapest hasn’t been recommended, the FCA should perhaps try out some of the industry’s sourcing tools to see for themselves just how woeful technology still is at drafting such lists!

  • Peter Turner 7th May 2019 at 2:21 pm

    Before going down the execution only route, remember that as far as FOS is concerned this means you are stood up against a wall and shot.