FCA raises concerns about restricted mortgage access

FCA raises concerns about restricted mortgage access

The FCA is considering a crackdown on mortgage brokers who restrict access to a limited range of products as part of an effort by the City regulator to encourage competition in the sector.

The regulator has launched a call for input, asking mortgage sector participants what it could do to encourage greater competition in the market.

In the 30-page document, Call for Inputs on Competition in the Mortgage Sector, the FCA expressed concern about consumers’ ability to effectively access, assess and act on information about mortgage products and services.

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The document said: “Advisers can play a valuable role in the mortgage transaction, and are required to ensure that any product they recommend is appropriate in light of a consumer’s needs and circumstances.

“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.

It warned that such practices may be influenced by the use of mortgage sourcing systems.

Key points

FCA research warns that consumers may focus on headline interest rates or fail to consider other information which is relevant to their assessment of mortgage products.

Consumers may not fully understand the limitations of the information provided.

Mortgage advisers might have access to only a limited number of products and providers

Advisers may receive a range of incentives for making product recommendations.

Mortgage charging structures can be complex and vary across providers and product types.

The document went on to say the use of mortgage sourcing systems could prevent new entrants from breaking into the market because they prevent brokers from accessing certain products.

It also raises concerns about the incentives mortgage advisers might receive for making recommendations.

Earlier this year, a thematic review by the FCA into the outcomes of MMR found ARs of many large networks were delivering advice with “little or no structure”.

It added the limited oversight and controls in many of these networks resulted in variable and inconsistent quality of advice and a higher propensity for unclear or unsuitable recommendations.

CML director general Paul Smee said: “The FCA’s role in promoting competitive markets is the part of regulation that best helps foster creativity, innovation and a sharp focus on what drives customers.

“It is also essential in delivering the kind of environment in which reputable lenders of all shapes and sizes can thrive.”

The Call for Inputs will close on 18 December 2015.

Adviser view

David Hollingworth, associate director of Bath-based London & Country Mortgages, said: “We advise across the market but you will get people who are limited to panels either because they are part of a network or because it is a route they choose to go down.

“The more you limit the choice of provider the more likely it is the borrower is not going to have the best choice.”