Mortgage experts have reacted to the Financial Conduct Authority’s consultation document outlining proposals for changes to its mortgage sales requirements.
The regulator wants to make it easier to offer execution-only options to borrowers and, where advice is given, for advisers to explain if they have not recommended the cheapest mortgage.
Intrinsic mortgage network managing director Gemma Harle says: “Considering a mortgage is likely to be the single largest piece of debt someone takes on in their life it seems strange that the FCA, in their consultation paper released today, is seemingly lamenting the fact that this important decision is increasingly being taken with the addition of mortgage advice.
“In fact, the take up of advice in this area is thanks to the regulator’s Mortgage Market Review. Before the financial crisis around 70 per cent of new sales were advised, this jumped to 97 per cent post the MMR, which was the intention. Now the regulator looks to be back peddling. In some respect its proposals are rational, but there is a real risk that removing the need for advice will be at the detriment to the public.”
Harle says it’s “somewhat irresponsible” to relax the rules around execution-only mortgages, pointing out that products are complex and there is never a one-size-fits-all mortgage. She says an adviser can help someone balance what might seem cheaper with the benefits of additional features.
Harle also points out that advisers are best placed to understand whether a customer will be eligible for a mortgage and help them avoid being declined by a lender because they didn’t understand the lending criteria.
She says: “Consumers are naturally going to have a laser focus on price, given mortgage payments are often the largest monthly sum out of take-home pay. However, headline price is only one factor to consider. Some mortgages might on the face of it look like they are cheaper, but due to a variety of reasons they might not be suitable and could even end up costing the consumer more in the long run.
“However, the FCA is sensible in its suggestion to relax its definition of what constitutes advice to not include guidance tools which allow customers to search and filter available mortgages as providing customers with as much information as possible is an important part of the equation.
“Similarly, the FCA’s proposal to require advisers to explain their reasons for suggesting a more expensive mortgage instead of a cheaper one is not a particularly bad suggestion, most advisers will do this during the advice process regardless and their decision will never be led by price alone anyway.
Ross Boyd of mortgage switching platform Dashly.com says it’s encouraging that the FCA is now fully embracing the potential of technology within the mortgage sector.
He says: “Powered by a combination of big data, open banking and machine learning, the mortgage platforms emerging today are achieving a level of customer-centricity that was never possible before. Thankfully, the FCA appears to be giving technology the benefit of the doubt and focusing on the value it can add for consumers.
“So advanced are these platforms that the results they present to prospective borrowers can be construed as advice because they will likely trigger the customer to take action. But as one of these platforms ourselves, we stand firmly against execution-only mortgages and believe that human advice, despite the major advances in technology, remains key.”
Boyd’s view is that the mortgage market needs a ‘tech and touch’ approach, with tech empowering consumers to identify mortgage savings, while brokers are on hand to provide real-life reassurance and the human touch.
He says: “The fact that modern mortgage platforms can ingest thousands of variables each day and identify savings even if someone has to pay an early redemption charge deep into a fix is extraordinary and empowering consumers like never before.
“Brokers always have to justify their choice of recommendation and it’s well known in the industry that cheapest is not always best. Multiple factors have to be taken into account when considering a mortgage, not just its rate.”
Bespoke Finance founder Adam Hosker says if the FCA was focused on the “best customer outcome”, then it has made a mistake with the proposals.
He says: “All parties know, and the data shows, advised process leads to better outcomes. My perception is the regulator has hit reverse. It found the advised process from banks were unable to compete in the market. It’s now opening the door to an inferior consumer finance route. The excuse is to facilitate “robo advice”. Or is it simply “robo” now?
“We’ve always demonstrated why certain products were recommended over others. If not part of evidencing Treating Customers Fairly, it is certainly demonstrating the best consumer outcome. Perhaps it was just best practice? The regulator putting in black and white is fine.”
London and Country associate director David Hollingworth says: “It seems a strange move to shift back from putting advice at the heart of the process to talking about how more execution-only could be facilitated. Crucial to this will be the need for borrowers to be under no illusion that they are in a non-advised environment and that suitability is not part of the product assessment.
“At least today’s paper acknowledges that a return to the days when customers felt they had been advised, when in fact they had only received information should be an unacceptable outcome and consequently made extremely clear to the borrower. Borrowers themselves now understand that there’s more to a deal than rate alone and that matching lender criteria plays just as big a role in the decision making process, so I expect the majority have come to value the advice of a broker in recent years.”
Coreco director Andrew Montlake says: “It is interesting that one recommendation that has come out of this whole, time-consuming process is to get brokers to do something they always do anyway. There are a multitude of reasons why brokers do not recommend the ‘cheapest’ product as we all know that cheapest does not equal best or most suitable. In those cases, we always have to explain why we have recommended a more expensive rate.
“To come up with something brokers are doing anyway shows a lack of understanding around how brokers work.”