The Financial Services Authority has come under attack for much of its Mortgage Market Review, particularly its dislike of interest-only mortgages and its penchant for a ’one-size-fits-all’ attitude when it comes to funding.
But there is some sense coming out of the regulator in the distribution and disclosure part of the MMR, which looks at the importance of advice when choosing a mortgage.
Astonishingly, a third of all mortgage sales are on an information-only basis.
This means that at no point has particular mortgage is appropriate for the borrower’s needs and circumstances.
While a proportion of borrowers may not need advice because they understand the product, know what they are doing and can make their own decisions, that won’t be true of the majority of consumers.
It could also be argued that even the most experienced borrower, who has bought and sold properties countless times before, would benefit from advice from an independent professional.
Considering that a mortgage is most people’s biggest outgoing, it’s important to get it right.
As we know, the problem with going direct to a lender is the absence of independent, whole-of-market advice.
There is no assessment of whether the mortgage is appropriate for the borrower, which could result in the wrong product being taken out. This could prove to be an expensive mistake.
There is some sense coming out of the regulator in the distribution and disclosure part of the MMR paper
Thankfully, many borrowers do take advice, although not as many as in the past.
In 2007, a study for the European Commission found that the UK was the only EU market in which broker sales accounted for more than half of the total number of mortgages taken out.
Since then, the industry has shrunk dramatically, with a number of intermediary firms going out of business.
But a recovery is underway. June 2009 was the first month since 2005 that more borrowers opted for mortgages direct rather than through brokers.
The market has since stabilised, with an equal share of consumers going direct as through a broker.
What has prompted the shift? I would put it down to the other significant change – in November 2009, 26% of mortgage products were available direct from lenders, but in November 2010 that dropped to 17%.
Clearly, the decision by some lenders to offer products only through their branches has played a big part in the decline in number of borrowers receiving advice.
The FSA commends brokers for adapting as well as they have to these difficult conditions. Many brokers have had to find ways of advising clients on direct-only deals as well as on those which they have access to.
The regulator talks of the enduring role of the intermediary because brokers continue to have a high share of the mortgage market even though some lenders have been focussing on lending via their branches.
The latest MMR paper is excellent news for those who believe in the importance of advice.
Independent, good quality, whole-of-market advice should never be underestimated. The FSA gets it and so should all consumers.