In its Financial Risk Outlook published today the regulator says the number of mortgage brokers that previously existed was “unsustainable”.
In 2008 there was a net fall of 769 mortgage firms, equivalent to 9% of the mortgage intermediary population compared to growth of 13% in 2007.
Its findings shows an increasing numbers of firms are becoming appointed representatives, including some directly authorised firms who have migrated across to this business model, however it is advising networks not to take on phoenix firms as members.
Its report warns: “We have previously reported our concerns that some firms with appointed representatives rely too heavily on remote monitoring, with inadequate consideration given to overall monitoring procedures.
“Not only do principal firms need to improve their approach, they may also need to increase the level of resource they dedicate to oversight and compliance functions to cope with increasing numbers of advisers.
“This includes carrying out appropriate due diligence to ensure the quality and sustainability of new member firms, and avoiding inadvertently taking on a ‘phoenixing’ firm.”
The FSA says lenders have greatly reduced their appetite to lend to consumers, with complex or more risky characteristics, an area that brokers have found profitable in the past.
The report says: “Even when the property market starts to recover, it is unlikely that intermediaries will be able to rely on this specialist area for revenue.
“In addition, many lenders totally reliant on intermediary business have left
the market, and mainstream lenders are likely to focus on direct distribution
channels and key national intermediary relationships in the future.
“With the majority of mortgages yielding one-off commissions, advisers are
reporting that on average only around half of their business now comes from
“With firms struggling to maintain income and capital resources,
it is likely that the number of firms in the sector will continue to contract
significantly, reducing access to advice for consumers.”