The regulator is interested in the range of factors that might affect competition in the provision of loans secured against a property, whether regulated or unregulated, including as a result of changes introduced following the Mortgage Market Review.
Firms’ conduct and relationships, consumers’ ability to access, assess and act on information about mortgage products and services will also be explored.
Christopher Woolard, director of strategy and competition at the FCA, said: “Competition can play a key role in ensuring that the sector works well, delivering consumer benefits through lower prices, better customer service, and more product choice.
“These views, together with evidence from the FCA’s wider programme of work on mortgages, will help inform any future FCA work on this key sector of the economy, including any future competition market study.”
Mr Woolard previously told the FCA’s mortgage conference that it must remain sensitive to the impact of the MMR reforms and keep focussed on whether the market is working well.
“Even if we believe our rules are proportionate, we need to remain alert to how firms are interpreting them and the effect on consumers.”
The paper itself tackles various issues already raised by the regulator, including questions over whether the extent and interpretation of the MMR rules has had a “dampening effect” on competition.
The FCA is therefore interested in whether the same policy objectives could be achieved in a more pro-competitive manner.
In terms of intermediary businesses, the paper noted that gaining a customer base is more difficult in markets with high switching costs or otherwise “sticky” consumers.
While switching costs can, and do, exist naturally, incumbent providers can also strategically increase switching costs to preserve market share, with the example given of costly early redemption leading to consumers being ‘locked into’ mortgages.
The FCA pointed out that since the MMR over two thirds of mortgages are now sold on an intermediated basis, stating that advisers can play a valuable role in the mortgage transaction.
“However, recent FCA thematic work identified some concerns about the quality and suitability of advice provided by some firms, and about some advisers acting in ways which appeared to compound consumer biases and errors.”
For example, advisers may offer limited product ranges, or weight their recommendations towards certain products in a way which is not transparent to the end consumer; practices and behaviours often influenced by the use of mortgage sourcing systems.
The paper also drew attention of advisers only having access a limited number of products and providers, receiving a range of incentives for making recommendations.
The deadline for responses is 18 December, with an outline of comments received and confirmation of any further action to be set out in a feedback statement, published in the first quarter of 2016.
peter.walker@ft.com
