Today the FCA published its interim report into mortgage market competition, first mooted in 2015.
The Financial Conduct Authority has singled out mortgage prisoners, shopping around and a broker comparison service as areas of the market that need change.
The news sparked a wave of responses from the industry.
UK Finance director of mortgages Jackie Bennett
“Today’s interim report highlights that, in the main, the mortgage market is working effectively for the vast majority of borrowers. The industry is committed to lending responsibly and ensuring that competition in the market works to the benefit of all customers.
“We note the FCA’s points regarding perceived areas of weaknesses within the market, particularly around customers who currently may be unable to switch products. We will be working through the FCA’s recommendations and continuing to engage closely with the regulator over the coming weeks as we respond to the consultation.”
Building Societies Association head of mortgage policy Paul Broadhead
“It is positive to see the FCA recognise that there are high levels of customer engagement in the mortgage market and that the commercial relationships between lenders and mortgage brokers broadly work. Although the study focuses on increasing consumer choice early in the process there appears to be a lack of consistency in the approach from price comparison websites. Customers are increasingly using these sites as a first port of call and it is important that they understand the breadth of the market that is covered and also the differences in how these listings are paid for – we believe that work is needed to make this more transparent.
“Price is one important, but not the only, factor in choosing a mortgage. Mortgage brokers play a key role in identifying a number of factors that are important to a borrower before making a recommendation. It is key that borrowers fully understand the services that intermediaries offer, and the breadth of the market they cover. A broker comparison tool could be a viable solution, but to make such a tool fit for purpose, and simple to navigate for consumers, further work and analysis is required.
“Our biggest concern is the number of borrowers that are unable to switch their mortgage once it is sold to a non-active, often unregulated entity. We are confident that building societies are making use of the transitional arrangements set out by the regulator to help their borrowers. There are many reasons for borrowers to remain on their reversion rate, such as plans to move home or because the rate is cheap. Nevertheless, the BSA will continue to work with FCA on their proposal for an industry-wide agreement for an internal switch for all customers meeting certain criteria.”
“While the market does work well for the majority of borrowers it is important that the industry adapts to evolving customer needs, including through the use of technology.”
Association of Mortgage Intermediaries chief executive Robert Sinclair
“We are pleased to see agreement that the issue of mortgage prisoners, whilst smaller than anticipated, is now acknowledged as significant. This needs to be tackled and we would like to see lenders taking a more pro-active approach. In addition, the report provides evidence of the scale of product transfers business which remains unreported. As it now clearly comprises more than a third of the market, we think that UKFinance and the FCA need to gather and publish this data to reflect its significance.
“We are happy to work with lenders to help them meet the existing rules on lenders openly publishing criteria to assist in the Decision in Principle process. We are however 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 Review 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 support 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 would provide the most effective solution.”
PwC financial services risk and regulation director Andrew Strange
“Today’s report ties together long-standing FCA concerns, predominantly around the fair treatment of legacy customers, with its new focus on technology and innovation.
“While the FCA identifies that many parts of the market work well, firms want to create technology to serve customers more innovatively, and the FCA is right to support this.
“But given the success the Mortgage Market Review has driven through advice and thus suitability, the FCA must be careful to add to consumer convenience, rather than dilute consumer protection.
“The proposed work to help consumers understand the relative strengths of brokers is innovative and could have wider application in other intermediated sectors.
“Helping existing customers to the right outcomes, particularly in a rising interest rate environment, should be an immediate priority for firms. The FCA’s work on interest-only mortgages last year will have helped firms think about how to approach these customers.
“An ability to provide greater understanding of eligibility before applying for a product, perhaps through technology, would also be welcomed. Again this could have wider application in the unsecured lending sector.”
Hampshire Trust Bank chief executive Matthew Wyles
“This is very encouraging output from the FCA in a number of ways – not least that our conduct regulator thinks that the mortgage market is functioning pretty well. The FCA has accurately pinpointed the scope for improvement and signalled its willingness to engage with the industry to make this happen.
“A most interesting and positive feature is the FCA’s reference to the need for to ‘remove barriers to innovation including those due to aspects of FCA advice rules and guidance’. This is both enlightened and constructive – as an industry we need to provide full support and engagement with the FCA in their endeavours.”
Aldermore commercial director Charles McDowell
“We are pleased to see the subject of reversion rates and mortgage prisoners being one of the areas of focus within the FCA’s review and wholeheartedly agree this needs to be investigated further.
“In order to begin to resolve this issue, we believe the industry needs to build trust and engage with consumers. The consumer often falls victim to a lack of communication and an opacity of information. There needs to be better communication from both the broker and lender; however we recognise that the broker often has the deeper relationship with the borrower.
“From a lender’s perspective, it is important that we take an appropriate view of the risk when reviewing applications, but there is a need to a strike a fine balance between risk and flexibility, and ultimately act in the consumers’ best interest. We have seen the likes of the self-employed struggle because they do not fit the norm, and the industry needs to consider consumers’ individual circumstances before refusing a remortgage application.
“We look forward to working closely with the regulator in the next phase of their review.”