The Mortgage Market Review seems to be on everyone’s mind at the moment. Google it, open a magazine or speak to someone at an industry function and you’ll hear an opinion or warning about it.
Comments range from “I don’t think it will affect the way I do business much” to “It’s the end of the road for mortgage brokers”, with most leaning wrongly towards the latter.
A reaction to the recent financial crisis and recession, the MMR is part of the Financial cleaning up and stabilising the mortgage market, which is seen as one of the sectors that caused the problem.
While there are plenty of academic papers on the subject definitive guidance on how it might affect brokers and financial advisers at a working level is thinner on the ground.
Hopefully, this article will help from a practical viewpoint. I have separated it into two sections. This week I will discuss changes which will have a direct influence on the way brokers work.
In my next article in a fortnight I plan to address indirect factors such as product changes that are equally important but may be considered one step removed from everyday business.
There are plenty of papers on the subject of the MMR but practical guidance is thinner on the ground
So suggestions in the MMR that directly affect mortgage professionals include:
Increasing capital requirements – There is a possibility that planned changes to capital adequacy regulations will require brokers to hold bigger sums in reserve.
It is doubtful that this will serve any useful purpose other than to put marginal brokers out of business, since cases involving complaints whereby clients have been financially disadvantaged are invariably dealt with through brokers’ professional indemnity cover.
Requiring all advisers to be personally accountable to the FSA – Essentially, all advisers conducting mortgage business will have to be individually entered on the FSA’s register.
This could result in longer lead times when it comes to getting registered, as was the case after Mortgage Day.
Initial backlogs could be experienced because of the increased load on the regulator’s systems.
Changing the names of advice categories – It is recommended that the term ’whole of market’ should be replaced with ’independent’ while single and tied advisers should all come under the heading ’restricted’.
This seems to make sense as most consumers don’t know what a tied adviser is.
Non-advised sales – These are likely to go completely, which is broadly to be welcomed as they usually leave clients with less protection.
Research shows that a number of individuals sold these products were not aware that the sales procedure was any different to the norm.
But it also raises the question of how clients can be classed as having a suitable degree of protection when they apply for a mortgage directly from a lender that does not offer a full range of products and can only advise on its own mortgages.
Rolling up broker fees – There is a suggestion that clients should not be allowed to roll up broker and other fees into their mortgages but this could disadvantage lower earners.