Plans are underway to crack down on “the web of relationships” in the advised mortgage market which risk “conflicts of interest or misaligned incentives”, according to the Financial Conduct Authority director of competition.
This morning the FCA published the results of its responsible lending review - and revealed it will be conducting further investigations into the mortgage market, particularly around advised borrowing.
Deborah Jones, director of competition at the FCA, said as part of the regulator’s call for input it heard from across the mortgage supply chain about the current “web of relationships”.
Questions were raised on the impact of lender panel arrangements, and other commercial agreements such as mortgage sourcing systems, and how those impact on competition in the market, she said.
“We’ll be looking at whether there is any potential for those sorts of arrangements to lead to conflicts of interest or misaligned incentives between different players,” she said.
“We’ll also be looking at whether there are any barriers to entry or expansion that exist, or players finding it difficult to get onto panels.”
The FCA review revealed industry concerns about the prevalence of commercial deals, for example where borrowers are led to believe they must use an estate agent’s in-house adviser to get a deal done.
Respondents called for safeguards to protect consumers from groups referring to their own brokers, conveyancers or surveyors.
Mortgage networks can improve efficiency, but also reduce competition, the FCA stated.
The regulator’s report raised concerns about network panels.
Smaller lenders felt pressurised to accept the terms on offer from large broker networks, it found, suggesting networks have “significant influence” in controlling access to products.
Brokers stated smaller firms can struggle to access the best prices from certain lenders.
Respondents also brought up a lack of transparency in terms of panel criteria, which can make it hard for lenders to expand.
These issues will be tackled by the regulator’s promised ‘targeted market study’, for which terms of reference will be published before the end of this year.
Ms Jones explained market studies of this type typically take around a year, with interim findings published at a midway point to enable firms to see the direction of travel and respond if they think points are being missed.
She said: “At that stage we’ll set out provisional areas of concern and early thinking of what we might do to solve those problems.
“Then at the final stage we’d be hoping to be in the position to consult on any rule changes, should they be necessary.”
Michelle Lawson, director at Lawson Financial, asked: “How can being whole of market mean that a broker can deal with a small panel of 12 to 15 lenders in comparison to someone like me who offers absolutely everyone?”
peter.walker@ft.com
