When considering a do-it-yourself project, one usually thinks about jobs around the home, not the purchase of the home itself. But execution-only mortgages enable just that – selecting a mortgage without advice from a professional.
In order to ensure that it does not cross the line into an advised sale, a lending firm is required to adhere to the specific guidelines laid out by the Association of Mortgage Intermediaries (AMI) before arranging an execution-only sale for a new mortgage.
The customer must identify the exact mortgage they wish to purchase and specify the name of the mortgage lender, the rate of interest, the interest rate type, the price or value of the property on which the mortgage would be secured, the length of term required, the precise sum to be borrowed, and whether the customer is opting for an interest-only or a repayment mortgage.
The borrower must also state in writing that they have rejected advice, are positively electing to proceed with the execution-only sale, and are aware of the consequences associated with losing the protections that advice can offer.
According to the FCA, a firm which intends to transact any execution-only sales must have in place a policy which sets out the amount of business it reasonably expects to incur through execution-only sales and the action it will take if the amount of business exceeds the expected levels.
Lending firms are not required to offer an execution-only sales route, and only need to have a policy in place if they intend to take on any execution-only business.
The individual in charge of designing the firm’s online execution-only process needs to be qualified if the process involves scripted questions. Otherwise there is no qualification requirement stated by the FCA.
According to Table 1. There were 984,816 mortgage sales in 2013, 211,311 of which were non-advised. This is down from 222,208 non-advised sales in 2012. The number of non-advised sales has been on a slow decline since the peak of 282,138 non-advised sales in 2009.
Graph 1 illustrates mortgage sales activity over the past six quarters, according to FCA mortgage data. In the first quarter of 2014 there were 45,374 non-advised mortgage sales, of 231,207 in total.
Following the changes included in the FCA’s Mortgage Market Review (MMR) implemented in April, firms will no longer be able to operate a ‘non-advised’ sales channel. Interactive sales, including telephone and face-to-face, will most likely need to be advised.
An execution-only route is still permissible by the FCA as long as it is a ‘non-interactive’ sales process, the customer has rejected the advice given and has elected to proceed with a product of their own choice, and the customer is high net worth – that is, have earned at least £100,000 or has held net assets to the value of more than £250,000 throughout the financial year – is a mortgage professional, or the loan is solely for business purposes.
Firms must always obtain the customer’s consent prior to proceeding on an execution-only basis and are required to notify them of the potential consequences of not taking advice. The promotion or encouragement of customers by firms to reject advice and proceed on an execution-only basis is not allowed.