Unsuitable recommendations and tight restrictions over circumstances on which lenders will give some people mortgages have been uncovered by an FCA review into the MMR.
In its 46-page thematic review, Embedding the Mortgage Market Review: Advice and Distribution, the City watchdog made recommendations to improve practice in some areas, but stopped short of identifying widespread, systemic customer detriment.
One year after the MMR’s introduction, the FCA carried out 134 mystery shops, including 108 in which advice was given, and 34 file reviews.
The FCA found that 59 per cent of shops resulted in suitable mortgage recommendations to customers. While only 3 per cent were assessed as being demonstrably unsuitable, in 38 per cent of cases the regulator could not determine whether the mortgage recommended was suitable because firms had not obtained sufficient relevant information.
Shoppers did not receive advice in 19 per cent of mystery shops, despite the shopper believing they had received a recommendation.
A report by research agency ESRO, published alongside the FCA’s thematic review, said that consumers had reported that lenders’ affordability questions seemed designed to trick applicants, with some claiming that they were afraid of ‘luxury’ spending or family plans being singled out by lenders as a black mark against their application.
The report also found that consumers using an ‘expert’ broker were encouraged and confident as a result. It said: “This may be in terms of a quick and speedy application, a perceived ‘lighter touch’ on documentation, or an increased likelihood of acceptance by the lender.
“The expertise and experience of intermediaries is highly valued by customers.”
The regulator said it expected advisers to improve communication when giving advice or recommendations and take reasonable steps to establish customer needs and circumstances.
Council of Mortgage Lenders director general Paul Smee said: “In many ways, the report’s conclusions chime with what firms are telling us about the challenges they face.”
Meanwhile, Rob Sinclair, chief executive of the Association of Mortgage Intermediaries, repeated the body’s call for greater clarity between fact finding, advice, making an application, underwriting and all related administrative activities.
Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said: “Fully adopting the principles of MMR was always likely to involve an extended period of adjustment.”
Stuart Duncan, mortgage adviser for Sussex-based The Personal Mortgage Service, said: “One of the aspects of MMR outcomes that strikes me is that the volume of checking and peripheral work like customer due diligence has gone through the roof.
“I suspect that, in many cases, both the clients and the advisers simply run out of time in which to do the job thoroughly.”
|26 April 2014: The MMR rules come into force.|
|November 2014: Linda Woodall, the FCA’s director of mortgage and consumer lending, says: “It has in the main been very much business as usual for most firms.”|
|April 2015: Lenders acknowledge disruption caused by the changes but praise their effects on the mortgage market. However some brokers are more critical.|
|Autumn 2015: The FCA will begin a wider assessment of barriers to competition.2016: Market study on consumer benefit of mortgage industry expected.|