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FCA sets out concerns over broker failings

The Financial Conduct Authority has raised concerns over brokers failing to get borrowers the cheapest deals in its Mortgage Market Study today.

The regulator has previously warned that borrowers who seek advice through a broker are still frequently missing out on the cheapest deals.

Today it suggests that once advisers have found a deal for which their client will qualify, they are not trying hard enough to search for others with matching eligibility criteria but a better rate.

It says that while brokers are highly incentivised to find a deal quickly for borrowers, “the incentives to search extensively and find the cheapest (suitable) mortgage are weaker”.

In prior research the watchdog found that 30 per cent of borrowers could have qualified for a cheaper, almost identical mortgage and made average savings of £550 a year.

Worryingly, it said that these missed savings were similar whether a borrower had used a broker or not.

The research suggested that even brokers who did not work from restricted panels still had a propensity to favour a small number of lenders for most of their business, pushing up costs for borrowers.

The FCA said at the time that a lack of transparency from lenders over their criteria was one of the main causes and that technology could help solve the problem.

It found that borrowers with poor credit histories, those on low incomes and those aged over 60 fared worse than average in terms of missed savings.

In today’s Mortgage Market Study the FCA digs deeper into the reasons why brokers may not be securing the best deals for their customers.

The FCA says: “There are strong incentives on an intermediary to find a customer a mortgage, and to do so as quickly as possible, to generate a procuration fee.

“And this is in line with a typical consumer’s needs. However, the incentives on an intermediary to search extensively for the best value mortgage are weaker.

“This is reflected in intermediaries’ panel strategies.

“These typically seek to cover a broad range of consumer circumstances (eg self-employed, poor credit history, etc) rather than a range of lenders for a specific customer, which could result in finding a cheaper mortgage.”

The FCA makes a further statement in the paper which may raise concerns for brokers.

It says: “We believe that some consumers are being channelled unnecessarily into advice.”

The assertion is not explained it great detail, but the FCA hints that it could be looking more closely at hybrid advice or execution-only models as it goes on to say: “Perhaps more importantly, there has been little significant consumer-facing innovation in mortgage distribution.

“For example, unlike other markets, for purchases of new products it is usually not possible to complete a mortgage transaction online (from initial search to acceptance of offer).”

The FCA says it will consult on proposals to change mortgage advice rules and guidance to help remove potential barriers to innovation in the second quarter of 2019.


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  • Simon Wilkinson 26th March 2019 at 10:43 am

    The definition of “best” is so open to question. Does “best” cover just rate or is it customer service or speed of service, or the likelihood of being able to overpay.
    Who is the “best” footballer – Kane because he scores goals or Pickford because he stops them