A Financial Conduct Authority review into the quality of mortgage advice has found that although most customers receive suitable advice, further work is needed to improve standards.
The report follows the implementation of last year’s Mortgage Market Review rules and found that many lenders have taken significant steps to provide advice for the first time and that there was no evidence of systemic customer detriment.
However, some firms were failing to take reasonable steps to obtain sufficient, relevant information about customers’ needs and circumstances before making recommendations.
Although 59 percent of advice provided to customers was assessed as suitable - with only a small number of cases assessed as demonstrably unsuitable - the basis for 38 per cent of recommendations was unclear, according to the FCA.
The consumer research also highlighted that some customers place the greatest importance on the initial monthly payment, to the detriment of other factors, which can dictate whether they think a mortgage is a ‘good deal’ or not.
The review also found that many lenders had made significant efforts to deliver advice for the first time by investing in systems, front-line staff and operational capability.
The regulator found this often resulted in lengthy, stilted and repetitive conversations with consumers which limited the adviser’s ability to engage effectively and properly assess needs and circumstances.
By contrast, other firms delivered advice with little or no structure, resulting in inconsistent quality of advice and a higher chance of unsuitable recommendations. The best performing firms have demonstrated that it is possible to strike an appropriate balance.
Linda Woodall, acting director of supervision at the FCA, said that it is vital customers are able to get suitable advice and a positive experience when deciding on their options, adding that some firms were able to provide this; but not all.
“Although we welcome the considerable work of those firms delivering advice for the first time, and particularly those that have proactively identified issues within their own processes, there is still scope for improvement.”
Individual feedback to firms visited as part of the study has already been given, together with actions required as a result of the findings.
Some firms assessed had already independently identified issues with their advice processes and were making changes to improve their service to consumers, noted the regulator.
The FCA added that a thematic review into responsible lending commenced in April and from autumn this year, it will begin a wider assessment of barriers to competition, with a view to launching a market study in early 2016 on those aspects of the mortgage market that are not working in consumers’ interests.
The Council of Mortgage Lenders’ director general Paul Smee, stated that lenders have had a huge workload in implementing the new rules and, in many ways, the report’s conclusions chime with what firms are telling them about the challenges they face.
“Like us, individual firms will welcome the opportunity to work with the FCA towards consistently delivering good outcomes for consumers.”
Paul Broadhead, head of mortgage policy at the Building Societies Association, added: “For the vast majority of consumers their mortgage remains the biggest single financial transaction of their lives, which is why getting the advice process spot on is so vitally important.”
peter.walker@ft.com
