After a period of quiet reflection and immersing myself in the detail, it is time to give a more impassioned view of the FCA’s Mortgages Market Study.
The good news is that the mortgage market is working well in many respects. The interim report found high levels of consumer engagement, good levels of switching and a reassuring range of products on offer with competition on headline rates.
Important also is that the regulator found no evidence of commercial arrangements between firms adversely impacting consumers. This is better than most other markets it has looked at.
Of course, all is not perfect in the world, but the comment in Section 8.9 that “we estimate intermediation currently reduces the average cost of initial borrowing by about £600 per annum over the introductory period” should give brokers a warm glow about how they do their job.
Perhaps of more concern is the comment that, in 31 per cent of intermediated transactions, a mortgage was advised where there was a cheaper equivalent product available. However, this was reduced to just 21 per cent if direct-only products were excluded and to 13 per cent where the lender may not have been open to all brokers.
Context is everything. And these were transactions that completed during 2016, so cover advice periods from September 2015 onwards. Those of us who live and breathe this industry know how much the market has moved on since then. Indeed, most of the research and (limited) analysis for the report was completed in July 2017 but not finally published until May 2018.
The financial crisis meant that those at the then-Financial Services Authority took its initial discussions on a Mortgage Market Review in 2009 into final rules in 2012 and implementation in 2014.
At the core of these lengthy discussions and an open consultation was the need for advised sales, firms taking responsibility for their products, services and actions, and ensuring that many of the bad practices in fast-moving, volatile markets could not be repeated.
I worry that, after 10 years of low interest rates and a very compliant market, we relax the rules at precisely the wrong time. In all the time since the MMR went live, I have heard lots of noise about how complex it is to give advice, how long the interview process is and how much consumers dislike having to take so long over all transactions. That said, what is interesting – and important – is that all these comments come from the lender community and the fintech challengers, not from the broker world.
But most concerning is the report’s all-pervading focus on price. It is just so misplaced.
For most consumers, a practical discussion on how much they might be able to borrow involves looking at where they sit on loan-to-value banding, which term and fixes are best for them, and which lenders will allow their circumstances. It is not one-dimensional.
In bringing the debate down to cost, the report has really missed the point.
It is admirable to want to empower consumers to make better choices but weakening the protections given by MMR and considering allowing more execution-only or “advice-lite” transactions cannot have my blessing.
If it was that simple, the price comparison sites and sourcing systems would have done it years ago.
My red pencil has been worn away marking this work and I hope that the final report is sharper in its conclusions. We must now debate what is really required.
Robert Sinclair is chief executive of Ami