The FCA is being urged not to launch a full-blown review into competitiveness in the mortgage market and instead focus on specific concerns around online sales and trapped borrowers.
The FCA has been scrutinising mortgage competition since publishing its 2015/16 business plan last March. The plan says the regulator wants to check barriers to competition in the mortgage sector.
The Building Societies Association, the Council of Mortgage Lenders, the Intermediary Mortgage Lenders Association and the Association of Mortgage Intermediaries have all called on the FCA not to intervene in the market, arguing it is already competitive.
But AMI and Imla have told the regulator to pay closer attention to execution-only sales and trapped borrowers.
AMI chief executive Robert Sinclair says people buying mortgages online may be doing so without sufficient information.
He says the issue hinges on whether lenders treat online mortgage sales as advice, where the customer is not expected to know what they want and so should be taken through a range of discussions, or execution-only, where the customer knows exactly what they want.
Sinclair says: “We are concerned that certain people might be pushing to change the landscape around digital.
“We are very clear that a number of the digital solutions where the customer is encouraged to answer questions means that is advice, not execution-only.
“Consumers might go on a price comparison website and find something they think is a good product for them, but, of course, that might not suit their overall circumstances, and they might not appreciate there are parts of the product that aren’t suitable for them.
“That should be challenged during the advice process.”
Imla has also told the FCA it has concerns about online mortgage sales, particularly through price comparison websites.
The trade body’s response to the FCA consultation says: “Online research options (aggregator sites) are often encouraging customers to make decisions based on rate and then choosing to take advice from a specific lender.
“This may result in the customer limiting their search to the products only available from that lender and, therefore, missing out on an alternative products that may better suit their needs.”
AMI has also warned the FCA of its concerns around trapped borrowers, a group of people that are locked into expensive or unsuitable mortgage deals.
Sinclair says: “There might be some situations where consumers are trapped by their existing lender in a way that’s inappropriate.
“There are a significant number of people who are being taken through unnecessary levels of affordability assessments by lenders who are currently meeting their mortgage repayments.”
The CML argues the mortgage market is already competitive and urges the regulator to avoid layering on more regulation to further increase competition.
The CML says: “To promote greater competition in the future the mortgage market would now benefit from a period of stability.
“Indeed, there might be a case for modest deregulation in some areas – or at least clarification of the rules by the FCA – to encourage more competition in the market. The regulator could provide greater clarity where firms may feel they are taking a risk if they opt for a liberal interpretation of the rules.
“In particular, it might be helpful for the FCA to make clear it will not take an unnecessarily severe approach – either now or retrospectively – with firms over the interpretation of rules for assessing affordability for borrowers whose mortgages extend into retirement.
“The same could apply to rules covering mortgage sales and advice, which currently appear to discourage some firms from dealing with online and digital applications from customers.”
Imla executive director Peter Williams says the regulator’s interest in investigating competition in the mortgage market could be stifling innovation.
Lentune Mortgage Consultancy managing director Stuart Gregory argues some lenders are keen to relax parts of their affordability checks, to help consumers, but not until they get greater certainty from the FCA on its intentions for the mortgage market.
He says: “What the market is craving now is a year of normality where we can get on with things without any disruption.”
But others say the FCA could come back with an approach that actually benefits the market.
BSA mortgage policy officer Robert Thickett says: “The FCA’s response might be broad brush, or they might look at specific areas. But it might also improve the kind of products out there and actually open up markets to smaller players.
“In previous studies they have gone in with their minds made up, whereas with this one it has felt very open.”